Raiders of the Lost Yahoo!

Welcome to the week that Yahoo! (Nasdaq: YHOO) has been dreading.

With Google's (Nasdaq: GOOG) blowout results on Thursday, it's not just about Big G being a hard act to follow. With the fate -- or at the very least the direction -- of Microhoo hanging in the balance, tomorrow's quarterly report out of Yahoo! is this year's second most-anticipated sequel after Indiana Jones.

Can Jerry Yang still crack that Indy whip?

It's not an easy question to answer. Yahoo! has been growing slower than its now-larger rival since Google went public nearly four years ago. It doesn't get any prettier on the way to the bottom line, where Yahoo! earnings have clocked in flat or lower in each of the past four quarters.

It has to do better than that to justify a higher offer from Microsoft (Nasdaq: MSFT). As desperate as Microsoft may be to compete against Google in the high-margin arena of paid search, investors will revolt if Microsoft is overpaying for a company in decline.

Party like it's 2004
Oh, things were so different when Google went public during the summer of 2004. Yahoo! was still the leader, and Google was the company that wanted to fetch as much as $135 a stub for its IPO, but had to settle for just $85 a share as a result of investor apathy.

Ahhh, 2004.

They have become passing ships since then. Google is now commanding about three times the revenue of Yahoo!, with an even wider discrepancy on the bottom line.

This isn't to say that Yahoo! has been driving in reverse since the Google IPO. Yahoo! revenue in 2007 was nearly double what the company rang up in 2004. The culprit has been shrinking margins along the way, with free cash flow and particularly earnings failing to keep the pace.

Google is the speedster, the bellwether, and the prettier sister.   

Yahoo! has become the Jan Brady of the Internet. It's always Marcia, Marcia, Marcia? It's always Google, Google, Google!

Keeping up with the Joneses
Yahoo! has tried to get the market to look away from the plan behind the curtain. It issued upbeat guidance last month, but it's upbeat only for those who have the patience to wait until 2009 and 2010 for growth. It's a neat trick. It buys Yahoo! time. Unfortunately, the trick isn't fooling impatient investors who sense that an attractive exit strategy may be getting away. Microsoft has threatened to pull its offer and possibly come back with an even lower price if Yahoo! doesn't warm up to the deal later this week.

This comes at a time when Yahoo! isn't getting the international assistance it once had. Back when Yahoo! was trading in the high teens, it had a mattress of cash and stakes in Asian investments like Yahoo! Japan, Gmarket (Nasdaq: GMKT), and Alibaba Group worth nearly $12 a share.

As fate would have it, Asian stocks have headed lower, and Yahoo! has been using up greenbacks in acquisitions. Since Microsoft's buyout has artificially inflated the market's perceived value of Yahoo!, the downside is precipitous. 

There are alternatives to falling into Microsoft's arms, but they bear a price. Outsourcing its paid search to Google strips Yahoo! of control of the juiciest slice in the online advertising pie. Combining with smaller dot-com moguls, like Time Warner's (NYSE: TWX) AOL or News Corp.'s (NYSE: NWS) MySpace, will come at the expense of reversing its buyout premium.

So there has never been more weight on a single earnings report than the one coming out of Yahoo! tomorrow. How strong are CEO Yang's knees? Will they buckle under the weight of the expectations and re-evaluations? Is this really the week that Yahoo! has been dreading, or are those in the know drooling over the potential to blow the market away in Google-esque fashion?

Grab some popcorn and find a seat. The boulder is just starting to roll through a Peruvian treasure cave, and Yang will try his best to escape with his whip, his hat, and the golden idol intact.