ATR Analyst: Yahoo Should Consider Letting Google Sell Their Ads

Now here’s an idea I hadn’t heard before: Rob Sanderson, an analyst with American Technology Research, asserted in a research note Tuesday that there’s an easy fix for Yahoo (YHOO) if its Panama search platform doesn’t succeed: revert to being a Google (GOOG) affiliate, as it was before the company bought Overture. Throwing in the towel on Panama and becoming a Google affiliate could allow the company to capture at least a portion of the 66% gap in search query monetization begtween Google and Yahoo, Sanderson asserts.

He contends that, while a black eye for management, such a move could be a “financial boom” to Yahoo investors. He says EBITDA could be at least 35% higher that current forecasts at Google’s rate of monetization, especially given lower costs.

Sanderson his analysis assumed that Yahoo traffic converts at the same rate as Google, though he concedes it would likely be lower; that Yahoo gets a moderate premium to Google’s average TAC rate, though he says it could actually be even better that that; and that the company gets $500 million in cost savings, a number which he thinks could be low. He also assumes no value at all for the curent affiliate business, which is not likely the case - as Sanderson notes, the company “almost certainly” could sell Overture to Microsoft (MSFT), for instance.

Sanderson believes his scenario could yield “higher EBITDA, margin and growth along with lower execution risk” and a stock in the mid-$40s; he says it could also lead to incremental profits of $1-$2 a share for Google.

This is not going to play out tomorrow, but it is an interesting fall back position. And as Sanderson writes, Yahoo’s 400 million-plus users “represent the greatest pool of traffic on the Internet and will be monetized one way or another.”

Yahoo shares today rose 39 cents to $26.34.