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Saturday, May 03, 2003

Yahoo-Overture? Not at this Price

Since they first bubbled up amongst the eternally hopeful and terminally biased cheerleaders for Overture's stock on the Yahoo! Finance discussion boards, I've felt that the speculation about Yahoo acquiring Overture is, well, dumb.

Yes, Yahoo! raised $750 million in a bond financing. There are a lot of undervalued opportunities in the marketplace right now, so why shouldn't an established leader double down and consolidate its position by making a few key acquisitions of undervalued companies?

Yahoo! has made big acquisitions before, but they haven't been Overture. And the next one is unlikely to be Overture.

A purchase price in the range of $700 million assumes the continuation of Overture's long-term deals with companies like Yahoo, MSN, Lycos, Infospace, and AOL overseas. Without their large distribution partners, Overture is nothing, zilch, nada.

Problem is, if Overture was owned by Yahoo, those MSN, AOL, and Lycos deals would be in serious jeopardy. Without them, Overture is worth much less than $750 million. In fact, with its high overhead and big head-count, Overture would be bleeding cash all over the place if it lost those deals.

A more likely scenario, made even more plausible by the fact that some observers think they've seen Yahoo testing their own pay-per-click keyword ads, is that Yahoo will turn the screws on Overture a bit more in the next negotiation, by threatening to go in-house. Another thing Yahoo could do would be to briefly make a deal with Findwhat (as Lycos did) to "private label" their PPC service. This would deliver an additional 20,000 advertisers to Yahoo's database, which would be a decent kick-start towards offering their own service down the road.

Doesn't matter, anyway. Overture can talk all they want about their 90,000 advertisers. If Yahoo goes ahead with their own pay-per-click program, advertisers and their agents will open accounts faster than you can say "disintermediation."

So who is Yahoo going to acquire? IMHO it'll be either something strategic like Earthlink, or another cash-flow generating channel (like HotJobs). Yahoo makes good, steady profits in niches like Personals. There are sure to be other channels where an acquisition would pay off, such as travel, books, or well, you name it. I don't think Yahoo's going to be snapping up Amazon.com anytime soon (valued at $11.5 billion), but it's nice to see indications that they're thinking big. So why all the fascination with Overture, which has value only as long as its portal partners decide it does?

Posted by Andrew Goodman




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