Yahoo shares take a hit on Monday

Yahoo's stock lost significant value on Monday, the first day of trading after
Microsoft's decision over the weekend to give
up on acquiring Yahoo.

Yahoo's shares closed down 15 percent at US$24.37, after dropping as low as
$22.97 during the day.

While Wall Street seemed displeased that Yahoo and Microsoft didn't consummate
their merger, at least Yahoo's shares didn't retreat to their $19.18 pre-acquisition-bid
price.

"It was expected that the stock would be down meaningfully today. It's
also not surprising the stock is up fairly substantially from where it was prior
to the offer's announcement," said financial analyst Troy Mastin of William
Blair & Co.

As Mastin sees it, the stock managed to avoid a freefall to its pre-bid levels
because Yahoo's management has outlined plans that could increase the company's
value.

"This potential transaction seems to have catalyzed Yahoo's management
team to try to unlock some shareholder value or some hidden profitability in
their business model they've been slow to try to unlock before," Mastin
said.

One such move could be the deal that Yahoo is reportedly trying to cut to outsource
part of its search advertising business to Google. That would significantly
boost Yahoo's revenue and cash flow. Another value-creating possibility would
be the re-emergence of Microsoft as a Yahoo buyer in the coming months, he said.

It's hard to know if an outsourcing deal with Google would be a wise move in
the long term, since it would give Google more power in search advertising,
a market it dominates. As such, the Google deal puts Yahoo in a challenging
position, having to balance the short-term interests of its shareholders with
long-term considerations, Mastin said.

The Google deal could potentially give Yahoo the lift it needs to push its
share price to $33 or higher, said Mastin, who rates Yahoo's stock as "market
perform," meaning he expects it to perform approximately in line with the
broader market over the next 12 months.

Microsoft's last offer for Yahoo was $33 per share, or about $5 billion more
than its original offer, but Yahoo declined it, saying it wanted $37 per share,
according to Microsoft.

Yahoo did a limited, two-week test run of Google ads in April, but hasn't disclosed
the results. Without that knowledge, it's tough to say whether Yahoo did the
right thing in rejecting Microsoft's offer, Mastin said.

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