Impact on Yahoo’s stock from a Microsoft Bing deal
A Yahoo-Microsoft search partnership agreement is expected to be announced any day now. Microsoft’s courtship of Yahoo in 2008 led to suggestions that Yahoo should outsource its search advertising to Google. Now with Microsoft’s promising new search engine Bing, Yahoo has decided to partner with Microsoft before Bing can eat away Yahoo’s search market share.
The financial rationale behind such an agreement is that Yahoo will benefit from the higher search monetization of Microsoft and realize cost savings by relying on Microsoft’s search technology rather than its own. We estimate that Yahoo’s Revenue per 1,000 Searches (RPS) is $21 compared to $38 for Google and $42 for Microsoft. Part of Microsoft’s high search monetization is attributable to a higher mix of US searches. Nevertheless, Yahoo will benefit from Microsoft’s higher monetization and the company’s resources to continue investing heavily in search.
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Search Advertising constitutes 25% of the $16.72 per share Trefis price estimate for Yahoo. Within Yahoo’s content on our platform, you can see the impact on Yahoo’s stock price if its Revenue per Search were to increase to levels comparable with Microsoft through a search advertising arrangement. You can plot RPS for Google and Microsoft on the Yahoo Revenue per Search forecast.
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