BOSTON (CNN/Money) -
As we head into Thanksgiving, one group of investors giving thanks is the small number of Google shorts, that wild bunch of speculators who bet that the search company's stock price would fall. With Google stock finally reversing direction last week, they can, no doubt, splurge on a nicer bottle of wine for the holiday dinner table.
From where I sit, however, Yahoo! (Research) investors have far more to celebrate. Last week the company announced an expansion of its partnership with SBC, as well as a renewal of a key search agreement with Microsoft.
The two deals dovetail nicely. The Microsoft (Research) arrangement helps the company in the short term (until the agreement expires in mid-2006), and the SBC (Research) partnership should blossom just as the Microsoft deal winds down.
Yahoo! investors, however, didn't seem wowed by the announcements, and the company's stock actually fell almost 5 percent after the deals were announced. This dip may represent a decent opportunity to scoop up some Yahoo! as it bolsters its competitive position against Google.
Partnerships: A good thing
Here's why: SBC and Yahoo! first came together two years ago, when they announced a co-branded DSL partnership. People signing up for SBC's DSL service got access to some premium Yahoo!-branded products. The deal has been a rare win/win in the Net/telecom space, with SBC getting its offer in front of hundreds of millions of Yahoo! visitors and Yahoo! getting a piece of each DSL subscription.
Neither company will specify the financial gain from the deal, but some estimates have the partnership accounting for 4 percent of Yahoo!'s revenue. Hardly chump change, and it's easy money for chairman/CEO Terry Semel and his crew.
"It's very high margin," says Martin Pyykkonen, an analyst with Janco Research. "And Yahoo! just sits and waits for the checks."
The new partnership will bring Yahoo! news and entertainment content to SBC mobile phones and to a far more lucrative arena: television. The major telecoms are all rapidly overhauling their fiber networks in the hopes of providing television access to subscribers, in much the same way that cable companies such as Comcast now offer telephone service.
Should these telecom-provided television plans take off with consumers, Yahoo! will be in a prominent position because of its close ties to an innovative market leader. It will certainly look even better than Google (Research).
I'll explore this topic -- the impending television battle between telecoms and cable -- in depth in a later column, but my hunch is that these telecom efforts will resonate with consumers, but only if they can significantly undercut cable's prices. Which, honestly, shouldn't be that hard to do.
None of the analysts I spoke with said the SBC partnership expansion would cause them to revisit their numbers right now, but all viewed the deal positively.
The Microsoft factor
Now on to the MSN announcement. The renewal of the Microsoft search partnership is great news for Yahoo! in the short term. If you read nothing but the search-related news coming out of Microsoft of late, you'd likely think the company was ready to open the doors on its homegrown search technology. That's obviously not the case.
"The renewal was a little bit of a surprise," Pyykkonen says. "It's definitely a positive for Yahoo!."
More than anything, the two deals -- particularly the SBC partnership -- highlight a strength that Yahoo! possesses over Google: its diversification. Yahoo! makes roughly 80 percent of its revenue from advertising, whereas 99 percent of Google's third-quarter revenue came from advertising.
That's an unhealthy situation. Yahoo! investors -- and maybe a few Google shorts who have cashed out -- should take advantage of these diversification announcements to buttress their search position.
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