Bernstein Research analyst Jeffrey Lindsay has some aggressive advice for Yahoo (NASDAQ:YHOO) CEO Jerry Yang. He thinks the company’s current slow and incremental approach to fixing the business is actually a risky strategy; he says Yahoo’s large customer base “has been flat for some time and is starting to fray at the edges.”
The danger is that moving slowly will allow Yahoo’s subscriber metrics to deteriorate, damaging the value of the business.
Lindsay’s advice: outsource search to Google (NASDAQ:GOOG), and cut staff by as much as 25%. He thinks the company could boost 2008 operating income by $565 million, and EPS by 24 cents, by outsourcing search; cutting a quarter of the staff could add another $658 million in operating income, and another 28 cents in EPS, he figures. He also contends Yahoo needs to restructure its display advertising business to boost growth to the industry average; if ity can do that, he writes, the company can add another $376 million in revenue and 15 cents in EPS.
Lindsay is not the first person to suggest outsourcing search to Google, but the report will certainly add to the pressure on the company.