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Yahoo! Long term win

|Includes: Microsoft Corporation (MSFT)

After a year of rumors Yahoo and Microsoft have joined forces to take on Google. In what came to many as a surprise, Yahoo agreed to a longer payout of ad revenues instead of an upfront payment. Microsoft will provide the search technology on Yahoo's sites which will have a broader reach and theoretically become more lucrative than an upfront payment. Yahoo can now focus on what it does best, publishing news, entertainment, sports and email while comparisons to Google should slowly dissipate. The new MicroHoo will gardner a 28% market share in the U.S while Google holds 65%. Carol Bartz announced that operating income will increase by $500 million while capital expenditures will see a savings of over $200 million as investments in search technology cease. Every percentage point that the new combination can pull away from Google will increase the revenue from ads and shift market dynamics while cutting into the text ad business that Google thrives from. What is important to remember is that Yahoo is retaining 88% of the revenue for the first five years while its cost is zero, not a bad deal. In the end the marketplace becomes more competitive as Googles stronghold is challenged. This argument presented to the Justice Department should be a minor obstacle to overcome as the deal places options back to advertisers and consumers.  The recent sell-off is a major overreaction to a very constructive and highly valued deal.  Lets not forget what Yahoo aims to become, Yahoo TV.
'Disclosure: Long YHOO"