Google earnings make Microsoft yearn more for Yahoo

In view of Google's revenue, profit, and romancing of Yahoo, how does this make Microsoft feel? Perhaps we have a tipping point for Redmond to sweeten its offer.

Google-DoubleClick skated through its quarterly earnings call, with a healthy $5.19 billion in revenue for the quarter ending March 31, and operating income of $1.55 billion. At this rate Google is on track to top $25 billion in annual revenue. The company has a nest egg of over $12 billion in cash. The stock price is up $76 (about 17 percent) in after-hours trading as of 3:30 p.m. PDT. And, Google's search share in the U.S. is nearly 60 percent. All is well at the Googleplex.

Google

Yahoo announces its first quarter earnings on Tuesday, and the results will likely be acceptable to the Street given the signaling from the company. Earlier the company said that it expects to post revenue within a forecast range of $1.28 billion to $1.38 billion. For further reference, Yahoo's full year 2007 revenue was $6.97 billion, with an operating income of $695 million. Revenue for Q4 2007 was $1.83 billion.

Yahoo

Yahoo has a good, profitable business, but Google did $4.83 billion just for its fourth quarter in 2007. In essence, Google is pummeling Yahoo, and Microsoft, in the lucrative ad/search space.

On the other hand, Microsoft is doing just fine in its current set of businesses, which are coming under a little stress as the cloud inhabited by Google, Yahoo, Salesforce.com, and others affects the perception and future of the Windows and Office franchises. For its fiscal year ending June 30, 2008, Microsoft is expecting revenue in the range of $59.9 billion to $60.5 billion, and operating income in the range of $24.2 billion to $24.4 billion.

During the earnings call, Google CEO Eric Schmidt referenced the ad "test" his company is doing with Yahoo: "It's nice working with Yahoo and we like them very much," he said. The Wall Street Journal reported Thursday that Yahoo is getting closer to a deal to outsource its core ad search business to Google.

In view of Google's revenue, profit, and romancing of Yahoo, how does this make Microsoft feel? Jealous and angry, I presume. The longer the mating dance lasts, and Google continues to print money and Yahoo plays hard to get, you might expect that Microsoft is more motivated to get the deal done. Microsoft covets Google's business model and its growth potential, so it makes good sense to Bill Gates and Steve Ballmer to join up with Yahoo to stop Google from taking over the world, as Microsoft did with Windows and Office.

While some pundits don't see the deal as the right strategy to attack Google, Microsoft's exec team appears to be wedded to the idea. And, Ballmer and company are nothing if not persistent and relentless when they want something.

Whether Microhoo can stop Google's growth is questionable, the two could be a very large No. 2. Shareholders want a resolution. Will it be AOL + Yahoo with a little help from Google, or some other combo, or Microhoo? Perhaps Google's continued dominance in the Web era will be a tipping point for Microsoft to sweeten its offer.

 

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