Is Yahoo’s Rosy Forecast an Invitation for Higher Microsoft Bid?

Yahoo announced it expects to double its operating cash flow in the next three years despite an uncertain stock market and on the heels of Microsoft takeover bid.

The three-year plan, released Tuesday, said the company expects its operating cash flow to increase from US$1.9 billion to $3.7 billion while generating $8.8 billion in revenues. The growth will come from display and video advertising, which Yahoo said it expects to outpace the current market growth, and search revenue.

While the company painted a rosy picture, the presentation made clear that Yahoo must develop a new ad platform that simplifies advertising purchasing and selling transactions while building out the Panama search advertising platform, the bid-based platform for keywords and search advertising. The company also made it clear that its home page, search and mail need to be more open and useful for its 305 million monthly unique users.

“This is a scale business, and our scale business is a tremendous strategic asset,” said Roy Bostock, Yahoo’s chairman of the board.

Growth for Defense

The scalability may be an asset, but Yahoo’s forecast is more than a little aggressive, said Clayton Moran, senior vice president of Stanford Group, a Houston-based wealth management company for high net-worth individuals. The outlook assumes a 25 percent annual growth, which comes on the heels of two years with no growth, Moran told the E-Commerce Times.

However, financial realities likely didn’t motivate this announcement.

It appears that Yahoo is trying to force Microsoft into a public negotiation about the final purchase price of the company, Moran said. The release of the investor presentation comes several weeks after Microsoft’s $44.6 billion bid to purchase its long-time rival, a bid that Yahoo has rejected on the grounds that the $31 per share bid undervalued the company’s worth.

‘Speed to Closing’

Yahoo’s projected numbers won’t force Microsoft to make any concessions on the purchase price, Moran said, but a protracted negotiation in public could hinder Microsoft’s overall objectives of building a solid, competitive brand in the search and advertising sectors.

Yahoo’s push, which is aimed more at its investors and Microsoft than the general public, is an effort to force Microsoft to raise its offer to expedite the takeover.

“Microsoft is motivated to make this amicable because it will help the companies in the future,” said Moran. “The other motivation is speed to closing. That’s an area that Yahoo has control over. Microsoft wants it to be amicable but beyond that they don’t need to get aggressive.”