Ever since CEO Carol Bartz’s departure, news is afloat about Yahoo’s (NASDAQ:YHOO) potential sell-off or sale of certain assets as investors are idly waiting for a verdict. But Yahoo management seems in no hurry and is continuing talks with private equity houses and hedge funds exploring its financing options. The company is trying to uphold its credibility by forging new partnerships: one with AOL (NYSE:AOL) and Microsoft (NASDAQ:MSFT) to sell each others’ ad inventory and another with ABC network for content sharing. It recently also acquired InterClick for $270 million to boost its sinking display ad revenues. On the search front, its alliance with Microsoft isn’t bearing significant results either, with its search revenues decreasing 13% q-o-q in Q3. Meanwhile Yahoo continues to face the onslaught from Google (NASDAQ:GOOG) and Facebook in search and display ad markets, respectively.

Our complete analysis for Yahoo’s stock is here.

Search Revenues Drop in Q3

Yahoo’s search revenues dropped 13% q-o-q to $374 million in the last quarter. It however gained from $53 million in search operating cost and $4 million in transition cost from Microsoft, as part of the search agreement between the two companies.^[1] While the query volume and revenue per search (RPS) were slightly up in the U.S., the worldwide level for query volumes was down.

The search business contributes just about 10% to our estimate for Yahoo.

Efforts Continue Despite Uncertain Future

Yahoo is making efforts to uphold its impressive history and image by continuing partnerships and forging new ones in both search and display ad businesses, that together constitute around 25% of Yahoo’s stock value by our analysis.

Both Yahoo and Microsoft have agreed to extend the RPS guarantee agreement in the U.S. and Canada to 2013, and Yahoo will be completing its algorithm transition from Yahoo! Search to Microsoft for all of its markets globally by end of November.^[2]

The company continues to look for new content partnerships; its latest one was with ABC News and Investments in premium video programming category. Yahoo has also partnered with AOL and Microsoft wherein all the three companies would sell each others’ remnant ad inventory, a move we think is just a temporary respite to reduce traffic acquisition costs (TAC). (Read: Yahoo, AOL and Microsoft Announce Band-Aid Ad Deal, Doesn’t Change a Thing)

While we estimate Yahoo’s revenue per search (per 1,000 searches) will decrease from $9.90 in 2012 to $6.80 by the end of our forecast period, Trefis members project the RPS to be in the $11.40 level during the same period. The member estimates imply an upside of 4% to the Trefis price estimate for Yahoo’s stock.

We currently have a Trefis price estimate of $17 for Yahoo’s stock, about 8% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

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