MSFT + YHOO vs. GOOG
Apparently, this comment by Google’s Sergey Brin admitting weakness in the social networking sector prompted Microsoft to send in its unsolicited bid for Yahoo: “I don’t think we have the killer best way to advertise and monetize social networks yet. Some of the things we were working on in Q4 didn’t pan out, and there were some disappointments there.”
Now there’s a lot of hype going on about Microsoft’s $44.6B bid for Yahoo. Word today is Google is reaching out to Yahoo to offer “help” in an effort to thwart the deal - Google could itself bid for Yahoo (though unlikely due to antitrust scrutiny), or could offer Yahoo guaranteed revenue in some sort of a pact.
Yahoo has not yet responded to Microsoft’s offer, but speculations are abound. What is overlooked in the discussion is the market capitalization (the total dollar value of the company’s outstanding shares, or basically, the company’s total value).
- After the announcement of the potential merger, Yahoo’s market cap rose from $26B to $39B.
- Microsoft’s market cap fell from $313B to $293B.
- Thus, the net change is $-7B. This is a signal from the market that the combined Microhoo! is worth less than the two independents.
- Plus, their combined market share (the company’s sales as a % of the total internet search industry sales) would be 32.7%, which still lags Google’s 58.4%.
So, though Google’s growth has slackened (it only saw 52% last quarter compared to its 60, 70, 80% previous norm), and its stock fell 30% from its Nov 6th, 2007 record of $741.79, I don’t think Google has too much to worry about. Other than the fact it’s stock price is overvalued (which I’ll get to after a few more Corporate Finance lectures).
Also, here’s a good editorial about it.
