Yahoo! shares drop 10% on news of Microsoft search deal

Yahoo's share price plummeted 10% in early morning trading on the NASDAQ stock exchange following news of a search deal with Microsoft.

The NASDAQ had only been open for one hour as investors looked to drop Yahoo shares with trade volumes reaching as high as 12 million moves in the market. Volume is the number of shares traded in a particular security during a given period of time.

Microsoft and Yahoo! both announced a search deal where Yahoo search results will be "powered by Bing" starting next year. However, share prices aren't Yahoo's only problem from the new deal.

During a conference call for investors and media, Microsoft CEO Steve Ballmer admitted the deal had "been a longtime coming." He went on to explain that "both companies benefit from scale and better economics. Consumers really will get better products," Ballmer said.

Yahoo CEO Carol Bartz admitted there would be some redundancies for Yahoo employees. "There are certainly many Yahoo search employees that will be asked to take jobs at Microsoft as they integrate the technology," Bartz said. "There will also be search employees that we look to help us on the display side... And then unfortunately, there will be some redundancies in Yahoo." Bartz continued "there will be redundancies, but it will be in the future." Bartz did not estimate on how many redundancies there would be.

If today's early indications on Yahoo's stock are anything to go by then the company is in for a rough ride in the next 6 months+ until the deal is officially finalised and approved.


Image credit: Yahoo Finance

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37 Comments

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Not hugely surprised. I'm sure many investors wouldn't see this as being as attractive as the original proposal to buy the company outright not to mention in the scheme of things I think it shows the weakening influence of Yahoo as a brand, at least in search engines, despite their market share.

Smigit said,
...I think it shows the weakening influence of Yahoo as a brand, at least in search engines, despite their market share.

This makes no sense at all. So they have a decent market share, but somehow you feel they are losing their influence. Yahoo is actually one of the biggest sites on the net, it has the number 1 news site, number 1 sports site, number 1 finance site, number 1 in a lot of areas.

I realise they are biggest in a number of areas (add Email, Flickr ect to the list), but they are far from being as synonymous with "search" as they were years ago and I think this deal goes to further highlight it.

As above, my original statement was regarding the Yahoo name as a search product. Their other services are a different matter.

I've never enjoyed anything to do with Yahoo.. ever. The search is just clunky and yields crap results.

Nothing they did, felt right.

dave164 said,
I've never enjoyed anything to do with Yahoo.. ever. The search is just clunky and yields crap results.

Nothing they did, felt right.



I've found that Yahoo Search (which I still use as the default, even with Windows 7) yields fewer irrelevant results than Google (which is why I refuse to use Google search, even on Linux). Bing is catching up on the relevancy side against Yahoo, and far leads Google. One area that gains Google revenue (and an area that Yahoo has no products in) is the search-engine-appliance business (in fact, Google is *the* company in the SEA business, other than Cisco Systems; Google, in fact, leads Cisco in that market). I would like to see a Bing SEA (to compete with Google in that market, as I don't see Cisco doing a good job of it).

From what I heard, Yahoos stock price went down because the shareholders don't like the deal they got. Microsoft didn't give any money upfront. I think all Microsoft is paying is a percentage of the money they make off of the advertisements from searching, for a certain number of years.

Although personally I don't see what anyone likes about Yahoos search. I never use their search engine, its not that great. But then again I hate anything Yahoo related, they are a scumbag company.

TC17 said,
But then again I hate anything Yahoo related, they are a scumbag company.

I would love to hear your reasons why you think this?

I think yahoo came out of this not too bad, they use bing, so they don't waste resources on developing there own search engine. They also take over ALL search engine advertising, including Microsofts. So Microsoft won't be offering advertising anymore.

Guys above, armchair interpretation of the stock market is just silly. There's many reasons why it might go up or down - trying to pick a single one isn't going to work.

As the news story is right to imply, it's related to the agreement - but the agreement has many aspects. Picking one and running with it as the sole reason for the change is silly.

HalcyonX12 said,
This is suicide for Yahoo!, why would they do this?

Yahoo faced many problems this year. They closed down dozens of their services including their famous social network Yahoo 360. I think it was better for them to take the Microsoft deal at the first place last year.

The stock market knows no one gets out of an MS partnership is better shape than when they entered it, you guys are hilarious acting like this benefits anyone but MS (and I'd call that benefit dubious as well).

omnicoder said,
*reads comment*
*re-reads comment*
*Files comment in "Apple Fanboys/Anti Microsoft" Folder*
*continues on with day*

Huh? But fact is that the stock is falling due to a lessened confidence in Yahoo due to their MS partnership.

It's a shame that what some also don't seem to understand is that the major yahoo stock holders are also big holders of MS stock. No need to hold both if in the end MS's will jump more. You sell now to make a quick gain and then watch MS's go up, and it will, off of the news.

GP007 said,
It's a shame that what some also don't seem to understand is that the major yahoo stock holders are also big holders of MS stock. No need to hold both if in the end MS's will jump more. You sell now to make a quick gain and then watch MS's go up, and it will, off of the news.

Wow, what an absolute lie. How far will you go in making stuff up to justify this. People don't have confidence in MS anymore. They messed up with Vista, Zune has been a failure, and xbox is yet to turn a profit. They have sunk so much into search, to early to see how that will go. Windows mobile is falling way behind everything else.

omnicoder said,
*reads comment*
*re-reads comment*
*Files comment in "Apple Fanboys/Anti Microsoft" Folder*
*continues on with day*

If that makes it easier for you, but the fact remains most Microsoft "partners" end up getting hosed in the end. Without even trying I'll just toss out all their hardware partners for "Plays4Sure" but there are so many examples it's really hard to deny.

And why MS needs to get into the search market and so far out of their core competency is beyond me, and judging by both stocks today, beyond any reasoned investor. This isn't some great news, it's just another example of MS flailing about with more "me too" products.

Jugalator said,

Huh? But fact is that the stock is falling due to a lessened confidence in Yahoo due to their MS partnership.

Fact's based on what proof??? IMO the stock has dropped as has been repeatedly said, some people bought early, ever heard of "insider trading"? yes illegal but does happen, once the word is out to stockbrokers they buy, buy buy that's what pushes the prices up, this then makes the news, and the relative companies release a PR statement. In this instance these *cough*individuals, realised taht the stock price will not provide the big pay out they wanted, not to mention the shares in Yahoo Apple held that they will have immediately relinquished.

That's very strange. I figured the stock price would have increased as well. Let's be honest, Yahoo was just dieing a slow death anyway... This deal saved them (Though I still think a purchase would have benefited Yahoo more)...

A full Yahoo buyout would probably happen over time, the 10 years this deal talks about. By the time it'c close to ending MS will probably have more control over things than at the start and just buy up the rest then.

M_Lyons10 said,
That's very strange. I figured the stock price would have increased as well. Let's be honest, Yahoo was just dieing a slow death anyway... This deal saved them (Though I still think a purchase would have benefited Yahoo more)...

Yeah, but you need to realize not everybody in the real world is in love with Microsoft. Microsoft have just had a bad quarter for them, people are starting to wonder if they know what they are doing. They are spreading themselves into a lot of industries, away from there core projects. When it looks like a company is going to falter, people expect them to concentrate more on there cores, in MS case Office and Windows.

manmohanjit1 said,
You can't be confident on why it dropped. It could be because of something else.

You are hilarious, absolutely no other news regarding Yahoo is relevant todays.

bob_c_b said,
You are hilarious, absolutely no other news regarding Yahoo is relevant todays.

Haha, thanks. but I don't think I was funny, Anyways, this could be true but why? Why would the shares drop?

Yahoo shareholders wanted a bigger cut and or a total buyout probably. In the long run though I figure MS will just take over fully and that'll be the end of Yahoo as we know it.

I think the stock was trading high on expectation of a buyout / Microsoft taking control completely, and it's down over the nature of the agreement...nothing to do with product quality just yahoo being traded higher.

They probably got punished for talking about layoffs.
I'd much rather be a Microsoft employee than working for a ****ty company like Yahoo.