Experts tell Yahoo to sell up

As Yahoo approaches the end of a 100-day strategic review, financial analysts want drastic action or even a sale of the company, although many are bracing for business as usual.

Chief Executive Jerry Yang raised hopes that major change might be in store, telling investors shortly after he took the helm of the company in July that nothing was a “sacred cow.”

Since then Yahoo has embarked on a series of modest acquisitions to enhance key businesses such as advertising and collaboration software, while shutting marginal services and further reorganising management of its central ad sales force.

But nothing so far resembles the radical surgery many financial analysts argue is indispensable. Some critics say Yahoo should exit the web search business and partner with market leader Google.

Barring that, they say Yahoo should sell itself to a deep-pocketed partner such as Ebay, Microsoft, News Corp or AT&T to create a new internet behemoth to compete with far faster growing Google.

“There is only one type of Yahoo shareholder right now: One willing to overlook short-term performance with the belief that Yahoo is worth more to an acquirer,” says RBC Capital Markets analyst Jordan Rohan.

So when Yahoo reports third-quarter results this week, investors are likely to look past the numbers to see if Yang has made any hard decisions during the past 100 days.

This partly reflects the easy bar analysts believe Yahoo set for results this quarter, amid ongoing web search market share losses to Google. But there is also concern the crown jewel of its ad business – banner display sales to brand advertisers – has deteriorated recently and faces further challenges ahead.

“We can’t see in any of the outside metrics where Yahoo is making any headway in turning around its core businesses,” says Bernstein analyst Jeffrey Lindsay.

Analysts expect Yahoo revenue to grow 10% to $1.24 billion (£609 million) from a year ago, while earnings are expected to slide around 28% to 8 cents a share, on average, according to Reuters Estimates. Google is expected to report it grew five times faster than Yahoo in that period.

“This is the lowest bar that a major internet company has ever set given all the positive news coming from elsewhere in the sector,” Rohan says.