Why Yahoo Should Sell— Before Microsoft Wakes Up
Forget cash flow; think sale price
By Kevin Spak,  Newser Staff
Posted May 20, 2008 10:08 AM CDT
This April 30, 2008 file photo shows an exterior view of Yahoo headquarters in Sunnyvale, Calif.   (AP Photo/Paul Sakuma, File)
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(Newser) – Yahoo needs to sell to Microsoft, or it’ll wind up a cautionary tale, writes Dennis Berman in the Wall Street Journal. Yahoo currently trades at 48 times earnings—for comparison, GE trades at 15 times earnings, and Google at 33, even though both are growing faster than Yahoo’s sad 9% rate. Lagging in growth isn’t a recipe for success: just ask AOL.

According to several bankers, AOL’s value has fallen about 50% since it decided to become a free, advertising-supported portal in 2005—in other words, since it adopted Yahoo’s model. Yahoo says it’s different, that it can generate more cash flow, but cash flow doesn’t matter right now; share price does. Yahoo needs to cash in now, while Microsoft still has delusions of becoming Google.