End of Microsoft Talks Leaves Yahoo! Competitively Challenged, Expensively Priced

6/13 - "Yahoo! sees the (Google) deal adding as much as $800 million in annual revenue, with as much as $250 million to $450 million in incremental operating cash flow...It's a smart financial move, but it moves Yahoo! another rung lower on the ladder of relevance. Yahoo! has the option of running its own ads, but why should it? Once investors taste what's possible under Google, they'll wonder why Yahoo! didn't break the emergency glass sooner."

"Yahoo! has tapped its balance sheet in acquiring display-advertising upstarts, an area that isn't as lucrative as paid search but is well suited for Yahoo!'s high volume of low-quality page views...Yahoo! itself isn't a low-quality company, but the traffic generated for its free email and its news portals is a weak sell for advertisers looking for marketable leads...I'll confess that I never understood why Microsoft would overpay for Yahoo! the way it did with its offer...Giants such as Google and smaller players such as IAC's (Nasdaq: IACI) Ask.com have been eating up Yahoo!'s fading (online advertising) market share. "

"Yahoo! was also trading in the high teens when Microsoft stepped in earlier this year. Now that Microsoft seems out of the picture, at least until it can try again next January at a lower price, Yahoo! will have to earn its keep. Even at yesterday's close of $23.52, Yahoo! is still expensive relative to the earnings valuations of its faster-growing rivals."