Microsoft Panics, Overpays For Yahoo

Michael Shedlock comments on the surprising Microsoft offer for Yahoo:

Microsoft blew all of its cash on hand to pick up less than 18% of the search engine market. Microsoft and Yahoo combined only have a 31.5% share compared to Google's (GOOG) 56.3% share.



One of the reasons to own Microsoft was that someday it would do something intelligent with its huge cash hoard. So far it has attempted to prop up its share price with huge special dividends, and now it is willing to part with every penny on its balance sheet to buy Yahoo!

With this offer, Microsoft has somehow decided this is the bottom for tech. I disagree. Furthermore, it is extremely unlikely that anyone else could possibly come up with $44 billion to buy Yahoo in this market climate. So what's the rush?

Heading into a consumer led recession was Yahoo!'s ad revenue going to significantly jump? No Chance! Even Google is struggling to grow.

Everyone, including Microsoft is underestimating how deep this recession is going to get and what that might do to earnings. Had Microsoft waited, it might have been able to get Yahoo! for 1/3 or even 1/4th the current offer.