Yahoo! (YHOO) Could See Upside from Microsoft/Facebook Search Deal (FB) (MSFT)

April 20, 2012 4:13 PM EDT
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Following Microsoft's (Nasdaq: MSFT) strong third-quarter earnings report, at least one analyst had a novel idea for the tech giant: sell it's search engine.

Nomura Equity analyst Rick Sherlund chatted on Bloomberg Radio earlier following the release of Nomura's analysis of Microsoft's results. During the interview, he said Microsoft should sell it's Bing search engine to Facebook (Nasdaq: FB).

The objective behind the move would be to give both Microsoft and Facebook a better chance against search giant Google (Nasdaq: GOOG).

Having valuated a potential deal at $5 billion -- twice annual sales of $2.5 billion of Microsoft's online services division -- Sherlund said it would boost Microsoft's earnings by about six to eight percent. In addition, the move would benefit Facebook, which needs to have a strong search business for further ad monetization.

Currently owning about 2 percent of Facebook, Microsoft would be able to get back about 80 percent of monetized search traffic from Facebook.

Unloading the unit would free Microsoft of an estimated $2 billion loss expected from Bing in 2012.

How would competitors fare? Yahoo! (Nasdaq: YHOO) could see some upside, as Microsoft's Bing already runs its search engine. Yahoo! would unlikely get any search metrics from a Facebook/Microsoft deal, but users of Facebook would be more likely to use Bing or Yahoo! when conducting a search outside of Facebook based on familiarity.

On the other hand, AOL (NYSE: AOL) might see some downside as users continue to veer away from the one-time search leader.

Shares of Microsoft and Yahoo! closed higher, while AOL shares closed lower.

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