Yahoo bullish on its future; expects higher Microsoft offer

Yahoo's management may have reconciled itself to being taken over by Microsoft, but is unwilling to sell itself cheap. In what many consider as a move to bargain a higher takeover price than the $42 billion offered by Microsoft, Yahoo said on Tuesday it is on track to meet its 2008 earnings forecast and also forecast a bright two years ahead.

Yahoo had already rejected Microsoft's offer as being severely undervaluing its assets and future growth prospects (See:Yahoo plans alternatives as board weighs Microsoft offer). In an investor presentation filed with the US Securities and Exchange Commission, Yahoo said that it ''provides meaningful strategic value and warrants a significant acquisition premium above its equity value''.

As for the future, Yahoo paints a very rosy picture. It believes it can nearly double operating cash flow to $3.7 billion in 2010. It forecast a rise in revenue, excluding payments to affiliates, to $8.8 billion from an estimated $5.7 billion this year.

Stressing on a bright future, Yahoo co-founder Jerry Yang who was brought back as CEO as a fire-fighting measure recently, said, ''Yahoo is positioned for accelerated financial growth -- we have a powerful consumer brand, a huge global audience and a highly profitable operating model''.

Responding to criticism that such over-optimistic predictions were merely a ruse to collect a higher takeover value, Yahoo said that the ambitious three-year view had been presented before board on December 2007, well before Microsoft made its offer public on 1 February 2008.

Yahoo expects to grow especially in the areas of internet display and video advertising, with estimates of $1.9 billion in added revenue over the next three years. It also expects to enhance its presence in the search market, adding a possible $1.4 billion over three years.

These being areas where Microsoft has traditionally lagged behind its rival Google, Yahoo expects a premium valuation on the grounds that its assets and services would provide an immediate shot in the arm for Microsoft.