Yahoo Inc. shares fell to a five-year low of $13.20 on Wednesday before rebounding to close down 5.6% at $13.76, below even the lowest of the deflated price targets set by Wall Street analysts.
And this time, the Sunnyvale, Calif., company couldn't even chalk up the drop to the bear market. Investors are increasingly concerned about how vulnerable Yahoo's online display advertising business is as advertisers pull back on spending. The outlook continues to worsen as the economic slowdown and credit crunch spread around the globe.
These days, nothing seems to be going Yahoo Chief Executive Jerry Yang's way. The company continues to lose Web search market share. Regulatory scrutiny has held up a proposed advertising partnership with Google Inc. that could deliver hundreds of millions of dollars in additional annual revenue. Two analysts cut price targets Wednesday ahead of what is projected to be a disappointing third-quarter earnings call Oct. 21.
Yahoo may have missed its best window to sell or spin off its stakes in Asian Internet firms, which have fallen in value. It is expected to lay off a significant chunk of its workforce as consultants from Bain & Co. scour the company for ways to save money. And investors are still hoping for a stock buyback, something, anything, to realize some value.
"We don't see any change in operating trends. If there is a change, it's a change for the worse," Stanford Group Co. analyst Clayton Moran said. "With the global macro economic slowdown deepening, there really is no end in sight to Yahoo's operational struggles."
So what's Yahoo to do? "Everything should be on the table," Moran said.
It's hard to believe that it was just nine months ago that Yahoo spurned a $31-a-share takeover offer from Microsoft Corp. Despite an American Technology Research report Wednesday speculating that Microsoft would again bid for Yahoo, analysts say the chances of the software giant doing so are remote.
"Yahoo is trading on its fundamentals again," said Anthony Valencia, media analyst for TCW Group in Los Angeles. "People are much less confident, or not confident at all, that there is going to be another offer from Microsoft, which was keeping the stock a little higher than it should have been."
Microsoft is far more interested in Yahoo's search business -- and AOL's too, if Yahoo's on-again, off-again merger talks with Time Warner Inc. to snap up the AOL Internet business bear fruit.
The possible combination of Yahoo and AOL gets mixed reviews. Some analysts and investors hope the two companies would be stronger together than they have been on their own. Collectively, they would have a huge stake in advertising, content and communications. And AOL would add about 5 percentage points to Yahoo's 14% domestic search market share, Moran said.
Not everyone is a fan.
"AOL is a Band-Aid to a bigger problem," Moran said. "It could appear to address the issues, but in reality I think it would come up short."
Yet, even as talks intensify, one major shareholder, who would talk only with his name not being used, wants the deal to move forward but says he isn't holding his breath. "It's like waiting for Godot," he said.