Even by the low linguistic standards of earnings calls, Yahoo!’s have long been stultifying. Jerry Yang, the internet company’s boss and co-founder, and his top lieutenants read a prepared statement of banalities and clichés in a robotic monotone, then recycle them when pretending to answer questions from Wall Street analysts—until the tedium overwhelms all concerned. This week, however, Mr Yang had listeners hanging on his every word. That is because he spoke four days before Microsoft was due, on April 26th, to carry out its threat to turn its takeover offer for Yahoo! hostile, by launching a proxy battle to oust Mr Yang and the other directors.
Industry-watchers thus dialled into the conference call fully expecting, as one analyst put it, that Yahoo! would have “pulled out all the stops” to make this quarter’s results look good. And so it had. Mr Yang has been arguing that Microsoft’s offer “substantially undervalues” Yahoo!, so the onus was on him to prove it. In Mr Yang’s mind, Yahoo!’s latest numbers did just that. Its revenue, net of the share going to partner websites, was $1.35 billion, 14% more than in the first quarter of last year and slightly above analysts’ forecasts. Not thrilling but, as Mr Yang said, “solid”.
It may not make any difference. “I wish Yahoo! all the success with its results but it doesn’t affect the value of Yahoo! to Microsoft,” Steve Ballmer, Microsoft’s boss, had already told the press before Mr Yang spoke. That value has everything to do with combining Yahoo! and Microsoft, which run a distant second and third in the lucrative business of web search and related advertising, in order to challenge the clear leader, Google.
Google, whose earnings calls tend to be more lively, reported much stronger results than expected on April 17th. ComScore, an online-measurement firm, had estimated that Google’s paid clicks—the number of times that web users click on its advertisements—were stagnating in America. As it turned out, “paid-click growth is much higher than has been speculated by third parties,” said Eric Schmidt, Google’s chief executive. Mostly that is because Google grew fast outside America; Yahoo!, ominously, did not, and looks much more exposed to America’s slowing economy. Google also places “fewer but much better ads,” said Mr Schmidt.
Yahoo! has been trying to catch up with Google for years, but has consistently failed. Now beset by Microsoft, Yahoo! has hinted that it is ready simply to give up and, in effect, piggy-back on Google’s superiority in order to boost its own profits and persuade shareholders not to sell to Microsoft. For the past two weeks Yahoo! has been running a limited trial in which it allowed Google to place text advertisements on Yahoo!’s search pages in America. Mr Yang stayed mum as to how it fared, but Susan Decker, his number two, dropped hints that Yahoo! is “exploring options” relating to a Google partnership.
If the intention of such a deal is to make Microsoft increase its offer, it is likely to fail. Microsoft does not want to buy Yahoo! for the profits it can generate with Google’s help; it wants Yahoo! to add critical mass to Microsoft’s own advertising platform, adCenter, in order to make it competitive.
That leaves Yahoo! with one other option, long discussed but never quite achieved: to strike a deal with Time Warner, a media giant, to combine its web portal, AOL, with Yahoo!. Both websites are big in web-mail, instant messaging and display advertising. But they would never be as nimble as Google is already, or as Microsoft wants to become with Yahoo!. After almost three months of fighting Microsoft’s offer, Mr Yang has yet to propose a genuine alternative. With every passing day he becomes more likely to be forced into a deal—or forced out altogether.