Can Mark Cuban Save Yahoo!?

Everyone seems to be an armchair consultant when it comes to Yahoo! (Nasdaq: YHOO  ) . Now make way for a round of advice from someone who has experience in profiting from the dot-com portal.

"What Yahoo Should Do" is the header on yesterday's blog entry on Mark Cuban's BlogMaverick.com site. The media mogul details his plan for Yahoo! to get over Microsoft (Nasdaq: MSFT  ) and start growing again.

Cuban certainly has a history with the purple profit eater. He became an overnight billionaire when he sold Broadcast.com to Yahoo! before the dot-com bubble popped. He was also one of Carl Icahn's original choices earlier this year for a revamped Yahoo! board of directors.

Cuban is always worth listening to, even when he's wrong (as in when he bankrolled the smackdown on China Fire & Security (Nasdaq: CFSG  ) earlier this year). Cuban rocks. He's a rich guy with a personality as big as his billfold. He's a colorful corporate leader who doesn't mince words, a la Larry Ellison or Patrick Byrne.

And when the subject turns to Yahoo!, he's seen the sawdust inside the sausage factory.

So tell me more about this Cuban flotilla
Microsoft CEO Steve Ballmer is toying with Yahoo!, according to Cuban. "Ballmer has become the master of talking in circles about what might happen with Yahoo," he writes. "He knows when and how to say enough about Yahoo that it totally confuses the Yahoo Board and Executive Team. ..."

Yahoo! finds itself rudderless, Cuban suggests. Instead of focusing on a strategy to maximize growth and profitability, Ballmer's playful nibbles leave the company juggling internal priorities with parachute ripcords.

Cuban isn't the first to suggest that Microsoft is just toying with Yahoo!'s emotions. I did just that two months ago. However, since Cuban is way wealthier, more street-savvy, and owns one more NBA franchise than I, I'll let him plant the flag.

Cuban is certainly right about the Mr. Softy distraction. Shareholder expectations have been heightened since Ballmer began spewing pickup lines 11 months ago. Absent the software giant's meddling, we probably wouldn't have even entertained the demise of outgoing CEO Jerry Yang.

Yes, Yahoo! will never be Google (Nasdaq: GOOG  ) , but even Google has seen its stock pummeled over the past year.

Where Cuban is wrong
I don't necessarily agree with Cuban's assertion that Microsoft -- even though it has enough in net current assets to do so -- won't fork over $10 billion to $15 billion for Yahoo!'s search business, or possibly a bit more for all of Yahoo!. I also don't buy his assertion that Microsoft can't afford to invest in both Facebook and Yahoo! 

Keep in mind that this is the same company that was willing to pay roughly three times that much for Yahoo! earlier this year. This is also the same Microsoft that announced a $40 billion share repurchase plan three months ago. Unless its model erodes quickly, Microsoft is a cash-flow-generating beast. The greenery on its balance sheet is quickly replenished.

Cuban suggests that Yahoo! should go on a buying spree of its own, using its stock as legal tender. If that strategy is good enough for Yahoo!, why can't it work for Microsoft?

Where Cuban is right
"Yahoo should be the most aggressive acquirer on the planet right now," Cuban writes. "If you look at it objectively, this economic crisis and Yahoo's incredibly strong balance sheet have put it in a position to become a much stronger company via acquisitions."

You won't find me disagreeing with Cuban there. In fact, I've been keeping that cheering section warm for some time now.

"If Yahoo! was smart, it would take that $3.3 billion in cash and marketable securities on its balance sheet and go shopping," I wrote two months ago. "Instead of buying display ad networks, it should concentrate on high-traffic sites that draw the audiences made for paid search advertising."

It's not as if Yahoo! hasn't been hitting the boutiques like Carrie Bradshaw. Unfortunately, it's buying all of the wrong Manolos. I'm not talking about photo-sharing site Flickr, or even social bookmarking site del.icio.us. That is the appropriate path for Yahoo! to take. My problem is that it has typically keyed on display-advertising swallows like Right Media and BlueLithium

Yahoo! should be hungry for sites that target desirable audiences where sponsors pay top dollar for paid search ads. That is where Google is creaming Yahoo!, so why not go after wedding-planning hub The Knot (Nasdaq: KNOT  ) , interest-rate watcher Bankrate (Nasdaq: RATE  ) , or even a lifestyle juggernaut with a strong dot-com presence like Martha Stewart Living Omnimedia (NYSE: MSO  ) .

Yahoo! has more than enough cash to gobble down all three of those companies, though it can always aim higher and use its stock as collateral (as Cuban suggests).

Ultimately, Cuban is right about Yahoo! having to save itself. It can't just tie itself to the tracks and hope that the damsel-in-distress routine will smoke out a hero. The hero has to come from the inside.

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China Fire & Security Group is a Motley Fool Global Gains pick. Microsoft is a Motley Fool Inside Value recommendation. Bankrate, The Knot, and Google are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2008, at 4:12 PM, keyers wrote:

    Question: can yahoo survive without search? if the answer is no, then end of story.

    if answer is yes. yahoo is in prett good position. how is bad the situation? as bad as the economy. that's all.

    if you look a few years further, search does not have a future, and neither does google. in 2008, google stock is down over 60%, probably more than yahoo. why? more and more people refuse to click the ads in the search result. they did because they didn't realize they were ads.

    not convinced? look for another year.

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