Google in the eye of a slowdown

Google is sitting squarely in a troubling three-month slowing trend, and only some deft moves can spare the search giant from an apparent first-quarter shortfall.

ComScore numbers once again confirmed that people are searching less and clicking on advertisements at a much slower rate as the economy tanks and consumer spending pulls back. In March, Google’s paid clicks grew 2.7% over year-ago levels putting first-quarter paid click growth at 1.8%, a big slowdown from the 25% rate in the previous quarter and well below the 48% pace in the third quarter.

When your revenue engine is almost entirely fueled by Internet searches and ads clicks, it’s probably wise to watch your gauges. Analysts’ estimates for Google’s first quarter have been cut sharply ever since this trend was first spotted in January. But Google fans say the company has been honing its search efficiency and raising prices to offset the slump.

Additionally, some analyst point to Google’s ability to increase its U.S. market share to 55% in March from 53% at the beginning of the year.

Google reports earnings after the market closes Thursday. Analysts are looking for adjusted earnings of $4.52 a share on sales of $3.61 billion in the first quarter ended last month. That calls for a top line growth rate of 42% over last year’s revenue level.

If the company made adjustments, the chances of disappointing Wall Street will be limited. But if ComScore’s numbers are any indication, writes Henry Blodget of Silicon Alley Insider, Google “will miss by a mile.”

Yahoo to Reject Microsoft Buyout Offer, May Find Few Options

Yahoo! Inc., the Internet company that has failed to crack Google Inc.'s dominance of Web search, plans to reject a $44.6 billion takeover bid from Microsoft Corp., a person familiar with the situation said.

The board spent a week reviewing the $31-per-share unsolicited offer before deciding it was too low, and directors are likely to reject it tomorrow, said the person, who declined to be identified because the discussions aren't public. Yahoo wants at least $40, the Wall Street Journal reported yesterday.

The decision steps up pressure on co-founder Jerry Yang to present investors with a strategy to revive a stock that lost half its value in the two years before the offer. He may look to outsource its search efforts to Google or find another buyer, though analysts said it is unlikely that any other options will emerge and Microsoft may make a higher offer to win.

A lot of this is gamesmanship on the part of Yahoo, said Scott Kessler, an equity analyst at Standard & Poor's in New York who recommends holding Yahoo and buying Microsoft. Microsoft is well aware that Yahoo doesn't have any other options. What this is about is how much Microsoft wants Yahoo and how much time they're willing to wait to get this deal done.

Microsoft, the biggest software maker, could pay $40 for No. 2 Internet search company Yahoo, Kessler said. It is more likely the companies reach a deal for less, he said. UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor, said last week Microsoft may have to bid $34 to $37.

Yahoo spokeswoman Diana Wong said yesterday the company doesn't comment on rumors or speculation. Microsoft spokesmen Frank Shaw and Bill Cox didn't return calls yesterday.

Yang Resists

Yahoo, based in Sunnyvale, California, has posted eight straight quarters of profit declines and spent years trying and failing to catch up with Google in Web queries and the lucrative market for ads linked to search results.

Together, Microsoft and Yahoo would control more than a quarter of the market for animated ads and colorful display banners at the top of Web pages. Google hasn't made much progress there, giving the combined company a way to challenge Google and start going after emerging markets such as mobile-phone ads.

Still, Yang, 39, has resisted letting go of the company he co-founded in 1995 as a graduate student at Stanford University. He replaced Terry Semel as chief executive officer in June and intended to craft a strategy to revitalize Yahoo.

Hostile Measures

Yahoo is betting Microsoft won't take hostile measures to win the bid, the Journal said, even though the software maker has indicated that is a possibility. A person familiar with the matter said last week that Redmond, Washington-based Microsoft may seek to oust Yahoo directors should they reject its offer.

Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal, Microsoft CEO Steve Ballmer said in a letter to Yahoo's board that was made public when the offer was announced Feb. 1.

Yahoo rose 16 cents to $29.20 Feb. 8 in Nasdaq Stock Market trading and Microsoft added 44 cents to $28.56.

The offer is 62 percent more than Yahoo's stock price before the bid. The shares have climbed above the value of the cash-and- stock bid, showing shareholders expect a higher price. Microsoft plans to let investors choose cash or stock, at a ratio that will end up being about 50-50.

Microsoft shares have declined since the bid, lowering the value of the stock portion and pushing the total value of the deal to about $29.08 a share.

Yahoo is getting financial advice from Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Moelis & Co., according to two people familiar with the matter. Morgan Stanley and Blackstone Group LP are counseling Microsoft.

Google Possibility

Yahoo might seek help from rivals, soliciting other bids or seeking partnerships with Rupert Murdoch's News Corp. or Google to thwart Microsoft, according to analysts including Stanford Group Co.'s Clayton Moran.

Google CEO Eric Schmidt contacted Yang to suggest a partnership, the New York Times reported Feb. 4. A partnership with Mountain View, California-based Google may allow Yahoo to outsource its search service, shedding the costs of running its own search engine and sharing ad revenue with its larger rival.

Google spokesman Matt Furman declined to comment.

While a Google partnership is an option, it would face stiff regulatory scrutiny, Moran said. News Corp. isn't interested in bidding for Yahoo, Murdoch said on a Feb. 4 conference call. That means Yang's options probably won't pan out, said Andrew Frank, a New York-based analyst at researcher Gartner Inc.

The U.S. Justice Department is interested in reviewing the antitrust implications of a Yahoo-Microsoft transaction, spokeswoman Gina Talamona said after the bid was announced. Neelie Kroes, commissioner of competition for the European Commission, said her agency also would scrutinize a deal.

Google jumps into cell phone world

Internet search leader confirms rumors that it's developing a free cell phone software package to allow advertisers to reach mobile customers.

Confirming its long-rumored foray into the mobile market, Google said Monday it is developing a free cell phone software package so the Internet search leader can more easily peddle ads and services to people who aren't in front of a PC.

While the announcement ended months of speculation about the Mountain View-based company's cellular ambitions, the first phones equipped with Google's so-called "software stack" still won't be available until the second half of 2008.

And Google won't be making the phones, nor does it plan to stamp its prized brand on the devices. Instead, it will work with four cell phone manufacturers who have agreed to use Google's programs in their handsets. Consumers will have to buy a new phone to get the Google software because the bundle wasn't made for existing handsets.

Engineers have been working on the software for three years, dating back to a Silicon Valley startup called Android that Google acquired in 2005. The mobile software still bears the Android name in acknowledgment of its heritage.

"This is going to bring the Internet into cell phones in a very cool way," promised Andy Rubin, an Android co-founder who is now Google's director of mobile platforms.

Even with its market debut months away, Google's software looms as a significant threat to other mobile operating systems made by Microsoft , Research In Motion (Charts), Palm and Symbian, which is owned by Nokia and several other major phone makers.

Because Google's software will be free, it could undercut rivals who charge handset makers to install their operating systems. It also promises to make smart phones less expensive since manufacturers won't have to pay for software.

Google's system will also be based on computer code that can be openly distributed among programmers. That, Google hopes, will encourage developers to create new applications and other software improvements that could spawn new uses for smart phones.

"This is a shot that is going to be heard around the world, but it's just the first shot in what is going to be a very protracted battle in the next frontier of the mobile Web," said Michael Gartenberg, a Jupiter Research vice president.

So far, Motorola , Samsung Electronics Co., HTC and LG Electronics Inc. have agreed to use Google's software in some of their phones. Both Motorola and Samsung already buy Microsoft's Windows Mobile in some of their phones.

The list of wireless carriers that have agreed to provide service for the Google-powered phone in the United States include Sprint Nextel and Deutsche Telekom's T-Mobile in the United States. China Mobile, Telefonica in Spain and Telecom Italia are among the carriers that have signed on to provide service outside the United States.

They are among a Google-led group of 34 companies that have formed the Open Handset Alliance. Other key players include major chip makers like Intel Corp., Qualcomm Inc., Texas Instruments Inc., Broadcom Corp. and Nvidia Corp.

"This partnership will help unleash the potential of mobile technology for billions of users around the world," said Eric Schmidt, Google's chief executive.

Some key details, like pricing and how many phones will be shipped next year, have yet to be worked out.

Source - CNNMoney