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In corporate press-release wars like this, it is imperative to read between the lines. More important that what Yahoo (YHOO) said in its Microsoft (MSFT) response this morning was what it did NOT say. To wit:
- Our shareholders support us, not you.
- We had a strong first quarter.
THE WORDING IN THE LETTERS SUGGESTS YAHOO's INSTITUTIONAL SHAREHOLDERS MAY SUPPORT MICROSOFT, NOT YAHOO.
In Microsoft's letter on Saturday, it said the following:
By any fair measure, the large premium we offered in January is even more
significant today. We believe that the majority of your shareholders share
this assessment, even after reviewing your public disclosures relating to your
future prospects.
Note the exact language used: "We believe that the majority of your shareholders share this assessment." Now compare that to the language Yahoo used in rebuttal this morning:
Contrary to statements in your letter, stockholders
representing a significant portion of our outstanding shares have
indicated to us that your proposal substantially undervalues Yahoo!
"A significant portion" of stockholders is not a "majority." Jerry Yang and David Filo alone own a "significant portion" of Yahoo's shares. We think if Yahoo could have said "a majority of stockholders think your bid is too low," it would have.
To be fair to Yahoo, of course, we should note that Microsoft did not say "A majority of your shareholders think our bid is fair." It said, effectively, "a majority think you are worth less now than you were two months ago." Though both statements were obviously designed to convey consensus on the part of Yahoo's shareholders that the bid is too high or too low, neither actually says this.
Next, note the language Yahoo uses to express its shareholders' reaction to its three-year plan, ostensibly in rebuttal to Microsoft:
our three-year financial and
strategic plan which we have made public demonstrates significant
potential upside not previously communicated to the financial markets.
This plan has received positive feedback from our stockholders
As we noted earlier,"has received positive feedback" is not a ringing endorsement. What, exactly, does "positive feedback" mean? Does it mean that, in meetings with Jerry and Sue, some shareholders said "sounds good"? Relationships are critical in this business, and institutional investors often smile and nod politely in boardrooms while frantically placing SELL orders with their BlackBerries. Microsoft may well have more insight into the actual thinking of Yahoo investors than Yahoo does.
YAHOO's ASSERTION THAT Q1 WAS "CONSISTENT WITH PREVIOUS GUIDANCE" LEAVES LOTS OF ROOM FOR YAHOO TO BLOW QUARTER
If Yahoo had wanted to torpedo Microsoft's latest assault, it could have published a revenue figure for Q1 showing that it's revenue came at the high end of its forecast range. If it could have done this, we think it probably would have (or at least should have).
Instead, Yahoo said that its quarter and outlook are "consistent" with previous forecasts. However, the previous forecasts cover such a wide range that this statement is almost meaningless.
Specifically, Yahoo projects that its revenue will rise 8% to 17% in Q1. If revenue only grows 8%, this will equate to blowing the quarter, and Yahoo's last remaining hope will disappear. If revenue grows 17%, meanwhile, Yahoo will have blown away estimates, and the company will have new life with which to demand a higher price.
CONCLUSION
Yahoo's response did succeed in making Microsoft look as though it was playing fast and loose with some facts. On the margin, however, we think that what Yahoo didn't say in its letter this morning is more important than what it did say. The details of Yahoo's performance in Q1 are now even more critical, and Yahoo's careful wording thus far suggest that the numbers won't blow any doors off.
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