Yahoo sidesteps the big questions

Yahoo reported solid earnings for its first quarter, but by completely sidestepping discussion of the big Microsoft acquisition issues, the company left more unresolved than resolved.

The company had solid revenue growth, expressed cautious optimism about weathering an economic downturn, and modestly beat analysts' profit expectations. Chief Executive Jerry Yang issued lukewarm metaphors: "Our results this quarter demonstrate we are on the right track. We are pursing the right strategy, and it's beginning to bear fruit."

And in after-hours trading, the company's stock was essentially flat.

I'd say "Ho hum," but the stakes are too high right now. Unfortunately, Yahoo didn't show any of its cards.

Yahoo's financial results didn't carry an implicit conclusion, either. They weren't so bad that Microsoft's attempt to acquire Yahoo for $31 a share looks generous or so great that Yahoo shareholders will laugh off their suitor.

"The results, being neither fish nor fowl, presented a pretty clear outcome," said Gartner analyst Allen Weiner. "I think they're at that critical juncture where the best shareholder value they can give people is the $31 per share Microsoft has offered."

On a conference call to discuss the results, company executives stuck closely to a standard earnings script without advancing the discussion regarding the big issues:

• Selling to Microsoft. "Our board and management team continues to be open to any and all alternatives including a sale to Microsoft," Yang said, but, "We will not enter into any transaction that does not recognize the full value of this company."

• Partnerships such as one reported possibility to acquire AOL in exchange for an investment from Time Warner that could be used to repurchase Yahoo stock. The company is "expeditiously exploring a number of strategic alternatives," Yang said.

• A partnership to test Google's search ads alongside Yahoo's search results, a move that could increase the revenue per click that advertisers pay Yahoo. Yahoo gave passing mention to the test but said, in effect, "Stay tuned."

Given that Yang had no big news to announce, he had to walk a fine line on the conference call. He didn't want to throw in the towel to Microsoft, and he couldn't declare that Yahoo now has got Google running scared. And addressing touchy issues can open a can of worms during the question-and-answer period.

But just as there are consequences for saying something injudicious on the conference call, there are consequences to playing it too straight. If it wants to fend off Microsoft, Yahoo has to prove to its shareholders that its alternatives are real.

For example, sharing some preliminary results from the Google ad test could have helped advance the discussion about just how real some of the company's alternatives are. Analyst estimates accord 9 cents to Google for each ad clicked to 4 cents at Yahoo, so a partnership could be financially important.

Yahoo lost an opportunity to seize the initiative by rebutting Microsoft Chief Executive Steve Ballmer's latest take on the acquisition: "I wish Yahoo all the success with its results, but it doesn't affect the value of Yahoo to Microsoft."

Instead, Yahoo merely reported earnings. For seizing the initiative, I guess we'll have to wait for Ballmer.