Microsoft’s $31 a share offer for Yahoo is made possible by Yahoo’s slumping shares (Yahoo’s stock was trading at about $31 a year ago). While Yahoo has rejected Microsoft’s entreaties in the past, with Terry Semel stepping down as chairman of the board yesterday, things might be different this time. I ran some quick, back-of-the-envelope numbers to see what a combined Microsoft-Yahoo would look like financially, and how it would compare to Google.
* Microsoft figures are trailing four quarters and headcount is from June. Search figures from comScore.
Those headcount numbers and operating expenses could be cut significantly. Microsoft says it can shave at least $1 billion from operating expenses in a merged company.
The real impact to Microsoft, though, is not visible in these numbers because Yahoo represents a new growth opportunity for Microsoft in advertising revenues and online services. During the last four quarters, Microsoft’s revenues for its online services (MSN, Windows Live, aQuantive, etc.) were $2.8 billion and it lost $949 million. So just combining Yahoo with that business, you get revenues of $9.8 billion, but Microsoft would still be showing a net loss for that business of $289 million.
But this is an advertising play for Microsoft. It wants to combine the scale of its recently acquired advertising networks with that of Yahoo’s, along with Yahoo’s vast consumer reach (which is appealing to advertisers, who see all those eyeballs as valuable inventory).
On the conference call explaining the deal, Microsoft CEO Steve Ballmer general counsel Brad Smith points out with glee that, while other companies may make competing bids for Yahoo, one company that clearly can’t is Google. Citing a 75 percent market share in the paid-search advertising market worldwide, Ballmer asserts, “Google is prevented by antitrust laws from buying Yahoo.” (He should know, he does have some experience with antitrust laws). At the end of the call, CEO Steve Ballmer said that another driver behind the acquisition is to move Microsoft towards a more Web-based software-as-services company:
The Windows user wants to be live. There will be a Windows Live. There will be an Office Live.
Yahoo clearly has some strengths in this area, with its continued evolution of Yahoo Mail, acquisition of Zimbra, and other initiatives.
Update: Here are some numbers from Hitwise on the combined traffic reach of Yahoo and MSN properties. Together, they have a 15.6 percent market share of Internet traffic in the U.S. , compared to 7.7 percent for Google properties. But Google still has double teh market share in search of both Yahoo and Microsoft combined.
WOW!!! GO MAHOO!!
Google Revenue figure came out wrong- dot instead of ‘,’ will work
nice job erick - here are the live notes from the conference call which just ended a moment ago:
http://www.centernetworks.com/.....cquisition
YSOFT!!! sorry but i am trying to come up with a gud name..any1 got any ideas?
These are the kind of calculations made my investment bankers. Mergers like this never work. While Yahoo and Microsoft try to integrate their cultures Google will just further dominate its space. Putting two losers together (in search) doesn’t produce a winner.
Good morning Erick,
Just wanted to let you know that I have been a reader of your writing since your ‘Business 2.0’ days.
That being said, I would like to point out a couple typo’s I noticed on the post above.
Yahoo’sstock should be Yahoo’s stock.
So just combing Yahoo wih (you forgot the ‘t’ in with).
you get (space here) revenues of.
Microsoft would still be showing (space again) a.
Besides that, great post.
I hope Yahoo! does take Microsoft on its offer, why?
Because it is the only way than can still compete with the mighty G.
Take care.
Richard
Does this mean that the Microsoft-Yahoo deal will have a real chance to be the best and more profitable platform for Internet TV ?
Only time will tell
Combining the two will be a long and complex process. It is definitely a growth opportunity for Microsoft, but it will also require substantial additional investments to really reach its potential.
On both sides quite a number of existing partnerships will need to be ended. Resolving this without causing too much friction with existing partners and the user base will be quite a challenge.
If Microsoft really gets to acquire Yahoo there is a lot of work to do.
Here’s a freestyle translation of the Microsoft offer, paragraph per paragraph: http://poorbuthappy.com/ease/a.....-buy-yahoo
What is so bizarre is the sharp decline in just two months
What caused it - Yahoo is doing everything it can to compete.
Also, can ASK now compete - or will they be acquired by Microsoft. It will be a miracle if they can survive among these giants
BTW:
How will this effect the rumored Yahoo acquisition of BrighCove that was supposed to be announced today???????????/
Just look at microsoft.com sites and think about how little MS understands the Web space and their purchase of Yahoo might be looked upon as the death of both companies. MS has had years to develop their online strategy and come up with very little. Does this denote a real change inside MS? Or will the old guard continue to miss the boat? Regardless of the ad revenue, MS has a lot more that it tries to do.
My question is which products they will integrate and which they will not. Yes, they’ll integrate technologically, but will it be Windows Live powered by Yahoo!, or just Yahoo! search? What happens with Hotmail and Yahoo! mail? What happens with new products, like the Yahoo! TV Stream? What type of integration will Windows have with Yahoo! products? I could write an entire article on this subject alone.
http://www.usdoj.gov/
And that says it all.
Remember when MS tried to force anti-trust proceedings on Google for the doubleclick merger?
I bet Google remembers.
Unbeleivable really! Its a lot of money!! I wrote a bit about the post acquisition integration stuff and possible job losses which may well ensue here.
I don’t think this makes any sense for Yahoo from an overall perspective, even with their current troubles. There will definitely be a mass exodus of whatever talent Yahoo has left from all their smart acquisitions over the years and the customers (eyeballs) will leave just being associated with Microsoft.
This will be up there in the history of merger failures, right next to AOL TW.
The more i think about this, the more it makes sense. It a great move! Hopefully we’ll see it’s impact within a year.
In our humble opinion, Microsoft needs Yahoo! and Yahoo! needs Microsoft.
Henceforth, Microsoft will have both the Desktop world and the Webtop world.
That would be, (for Microsoft - yes), perfecto and invincible!!
I don’t know who created that table, but it seems to add the Microsoft and Yahoo figures. That’s not right. There must be some synergies there that would modify the dollar amounts.
Oh no.. Microsoft comes.
I’m not so sure about this for many reasons…but what do I know. For one thing, MS is not up with being open. Also a merger of this scale will take an awful long time to work things out. During that time, I think Google will keep advancing. I just feel MS and Yahoo are different in terms of direction, this could go totally downhill.
I hope MS buys it. Yahoooooooooooooooooooooooooooooooooooo. But man I can’t leave my first love Google
“What Would a Combined Microsoft-Yahoo Look Like…”
A very empty, lonely place after all the Yahoo employees jump ship and all us loyal Yahoo users leave, that’s for sure.
Something is a miss here, Ballmer’s open letter is an attempt to force the issue by getting the Yahoo stockholders on his side, after being told to go to hell last year when he made the same offer privately? Does that sound right all you VC people that read this blog?
Looks like you made a typo when spelling Google!
Better get that looked at.
I personally think that this would be a great thing to happen. As said, Microsoft has had years to work on their online presence; this is true, however, the foundation of the Microsoft products are SOFTWARE.
This is a deal that is completely ad-revenue related. Don’t forget, these are two veteran companies in the tech industry. They have both contributed to the growth and vision of how we use and see technology today. I am not shocked to see such a deal.
One thing that has me curious is Yahoo! Merchant solutions. This is an avenue that I haven’t seen Microsoft get involved with and I can only speculate that this are of Yahoo! will improve.
Yet another exciting day in tech!
Well how does google react now… a miss in Q4 earnings.. microsoft could not have timed this better.. well google must have known this for a long time.. how do you think google will react now..
How about Yahrosoft?
Compelling figuers and careful analysys and comparison.
http://tekno-world.blogspot.com
Your “back of the envelope” calculation is meaningless and downright embarrasing for this forum. Any fifth-grader can do the simple addition without bothering to think about the meaning of the numbers.
Even though nobody in this forum is expected to be a banker, a true “back of the envelope” calculation would estimate savings from cost synergies, and revenues from combined R & D effort. It’s really not that hard - but would be a lot more insightful…
Simply summing the Revenues and Gross Profit line items in their financial statements is not really going to give a very good look as to how big they will actually look post-merger. There are way to many variables on either end that need to be worked out.
Anti-trust litigation.
But a very interesting and bold play by Microsoft–especially considering this would eat into a huge chunk of their cash on hand.
Microsoft & yahoo worry about future Google TV.
They can’t beat Google
Watch there will be Google TV.
The real question is: What would your portfolio look like if you bought YHOO and MSFT a year ago?
The trend you show graphically is not a long term trend by any means.
http://finance.google.com/fina.....ASDAQ:MSFT
Graphs like statistics can show you what ever you want to see.
If Microsoft buys Yahoo. This means Microsoft owns tiny Yahoo companies like Alibaba, Rivals.com, Maven, etc.
They all have to listen to Evil Satan (Bill Gates) & Satan commander (Steve Ballmer). They have serve their wishes and accept power of wealth.
On the side:
Google motto “Do no evil”. Google main problem. They don’t have operating system. They don’t own Apple OS, Microsoft OS, and Linux. They don’t have the rights to own their operating system.
Ten things Google can not buy. They will face anti-trust lawsuits. Justice department does monitor these things.
1. Google cannot buy Amazon.com
2. Google cannot buy Ebay.com
3. Google cannot buy Yahoo.com
4. Google cannot buy Zoho.com
5. Google cannot buy Yandex.com
6. Google cannot buy Microsoft & Facebook
7. Google cannot buy Unix or Linux branding or SCO group.
8. Google cannot buy aother VC funded search engine such powerset, cuill, etc… and VC funded health search engine.
9. Google cannot buy walt disney, Nasacar, Pixar,
10. Google cannot buy blogging startups.
Smart move by Microsoft. Trying to buy a valuable property when its down in the dumps
“Price is what you pay. Value is what you get.” - Warren Buffet
what can google buy lol?
Not sure what the point of this analysis is.
The majority of the revenue, etc. comes from Microsoft anyhow.
Microsoft has been making more than Google, and will continue to for some time.
So what?
Its all about growth and neither Microsoft, nor Yahoo!, have demonstrated significant growth.
It’s probably a good deal for Yahoo!
Not sure how it makes sense really for Microsoft.
The numbers do not lie. It is all about time on market and market share. If you extrapolated Google 15 years into the future, the lead that MS has on it (if not more) then Google’s numbers would be WAY bigger than a MS+Yahoo!
First…
Hats off to TechCrunch.
You guys gave out predicted one day ahead of the market..that MSFT may buy YHOO.
Cheers to TC.
Rajan Tawate
@33… I don’t know…
If you ever get a job at Justice department. They will tell you. They do monitor every move Google makes. Let’s just say, If Google buys Xerox natural language search or natural language search with secret agreement. They would put Larry Page, Sergey Brin, Dr. Eric Schmidt, John Doerr, almost executives in Court.
It’s very risky. They have buy the most expensive lawyers. Any of these people could go to Jail. They have spend million, million, million dollars to get out obession monoploy power.
Anybody who has spent even a limited amount of time working with Google’s various development utilities knows that Google is accelerating at an ever increasing rate towards the future Web.
That is, what you see now (and what, presumably a combined MS/YHO intends to offer as a competitive entity) is nothing what the Web will look like/operate as within 12-24 mos.
If Billy G was 30 years old again, then I’d say it might be a different story. However, all the energy and brains are in Google’s court right now. They will not relinquish their lead for at least 10 years.
By then, there will be a new crop of young 20-somethings burning with ideas and desire to take us in some new direction.
LOL THAT IS THE GHETTOEST CHART EVER
The Good news Microsoft can legally buy Yahoo without facing lawsuits.
They can upgrade live search engine & Advertisment, Yahoo stock boost.
Google brought Doubleclick…
So this means. Microsoft could buy yahoo.
Big ++ves
* MS has a strong enterprise presence and sales footprints in non-US geographies. MS and Y!’s salesforce can dent Google’s attempt to acquire each and every advertiser.
Big –ves:
* What about competing products? Y! Mail vs. Hotmail? Live vs. Y! search? They need to ensure that Google doesn’t benefit from internal competition.
* Integration - cultural integration will be a tough task. Core DNA of the two entities are as different as it could be (developers in Y! have a “special feeling” towards Windows)
* MS’s perceived image in the eyes of consumers. Chances are that the deal might lead to pilferage and consumers will end up in Google’s lap.
If at all, the deal goes thru’:..more : http://www.pluggd.in/2008/02/m.....ood-or-bad
This sort of move will hedge off Google market share down the road, right now its an investment for the future. It seems like a preium to pay right now for Yahoo! but in reality the ROI and the assets Yahoo! has far out weighs the price. Apple has Google, Microsoft will have Yahoo!
MSFT must want to get this done soon. Can it close before the elections? If the Dems get in, deals will be harder to do. And I’ll bet Google is happy they have Gore in their hip pocket. Gore will be “advising” the Democrats to squash this.
On the other hand, if the Dems get in and the deal doesn’t get done, then Yahoo stock may tank more. Instead of paying Yahoo shareholders, Microsoft will have to give something up to the government in order to get it through the Democrat’s Politburo.
Yes, sounds very exciting. They should buy it.
http://seattlepi.nwsource.com/.....trust.html
Justice department — you can buy Yahoo anytime
Woooahhh
This is a great news for search engine industry…. consolidation is required.
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Fabulous acquisition. Two companies that “don’t get it” are now merged together to create a bigger company that won’t get it.
Google has a clear strategy of providing a platform so you can do everything you want to do with a Google product/platform taking the customer away from the OS. Yahoo tried to be an entertainment company under Semel and all he succeeded in doing was introducing Maria Sansone to the adoring masses. Microsoft is hamstrung because it is always afraid of cannibalizing is core office and OS products so it that it can never quickly launch anything and is reluctant to offer office productivity products.
It always amazed me that Yahoo never did something as intelligent as just copy Google’s strategy! There is nothing more whacky than watching a company continue a failed strategy month after month in the face of overwhelming evidence of failure.
This is very bullish for Google. This assures the marketplace that Google won’t have any serious competition and will grow share.
My unemploy mom doesn’t work yahoo. She owns Yahoo shares.
I don’t own Yahoo shares.
If microsoft brought Yahoo. I hope my mom use her yahoo shares to buy new $500,000 house.
Toronto stock jump high on yahoo. http://www.reuters.com/article.....8120080201
Oh man, torromow Asian, India, European stock exchange. They heading to buy Yahoo stock.