Yahoo! Shops For Something Blue

Forbes
by Andrew Farrell, September 4, 2007

Yahoo! shares jumped Tuesday on an analyst report that highlighted its attractiveness as a takeover target, but after the close, it was the search and portal giant that was doing the buying, announcing a definitive deal to acquire BlueLithium, the fifth-largest U.S. online advertising network, for $300 million.

The acquisition will bolster Yahoo!'s attempt to gain a greater share of the fast-growing online advertising market.

The privately-held, San Jose, Calif.-based company buys ad space on Web sites and resells it to advertisers. It offers behavioral targeting, through which Web surfers are shown ads relevant to their online activities, as tracked through the use of technology called cookies.

BlueLithium delivers ads to 145 million unique visitors a month, the companies said.

Earlier in the day, shares of Yahoo! (nasdaq: YHOO - news - people ) rose 5.5%, or $1.24, to close at $23.97 on Tuesday, after Bear Stearns (nyse: BSC - news - people ) analyst Robert Peck named Yahoo! as its top pick for the next 12 to 16 months. Peck said that Wall Street is ignoring many of the company's positives, like its partnership with eBay (nasdaq: EBAY - news - people ). Earlier this year, Yahoo! and the auction site announced plans to team up on advertising and online payments.

Yahoo! stock also has a number of potential positive catalysts on the horizon. Yahoo! launched Panama, a new system to make money off of searches, earlier this year. Peck said the Panama adoption should produce positive news on search metrics that will spur Yahoo! stock higher. (See: "Panama Gets Yahoo! Back In The Zone")

A buyout could provide a major share lift. Peck also said that Yahoo! is an attractive acquisition target for technology or traditional media companies looking to broaden their Web exposure. Peck said that an acquirer could value Yahoo! at around $50 per share. Microsoft (nasdaq: MSFT - news - people ) reportedly courted Yahoo! for a takeover earlier this year. (See: "Yahoo! Jumps On Microsoft Talk")

Tuesday's endorsement from Bear Stearns helped Yahoo! shares buck its downward trend. Year-to-date, its shares have lost 6.5% on concerns of slipping online search share and sluggish growth. The disappointing performance prompted Yahoo's Chief Executive Jerry Yang to craft a long-term strategic plan over 100 days this year.

"There will be no sacred cows and we need to move quickly," Yang told analysts during a conference call. The scope of Yang's plan has become in apparent in recent months with a string of high-profile management changes. (See: "Yahoo: Coleman Out; Schneider Heading Sales; Weiner Adds To Portfolio; BermanBraun Exits")

Peck said the "100 Day Review" was a key turning point for the company. He said it showed Yahoo! finally realized it needed a definitive strategic direction and acknowledged previous mistakes.

Tech stocks traded mostly higher Tuesday with the Nasdaq composite gaining 1.3%. Shares of Google (nasdaq: GOOG - news - people ) gained $9.90, or 1.9%, to $525.15, and shares of eBay gained 64 cents, or 1.4%, to $34.59.