Yahoo and Google announced an advertising partnership late Thursday. The plan is for Yahoo to run Google ads alongside its search results on some of its Web sites. Yahoo, which is desperately looking for ways to increase revenue and profit, said the deal could produce $800 million in revenue the first year and create better growth opportunities for online ads.
"We've done something really important here," Yahoo founder and CEO Jerry Yang said in a conference call after the markets closed Thursday. "I believe it puts Yahoo on a faster track to creating stockholder value and leadership in the emerging world of online global advertising."
But several analysts — including Derek Brown of the Wall Street firm Cantor Fitzgerald — question the wisdom of the deal.
"There's certainly a risk — we think a relatively high risk at that — that Yahoo is sacrificing significant long-term opportunities for near-term revenue and profit," Brown said.
He and others believe that the deal could make Google, the No. 1 online ad seller, even more dominant over the long term.
Yahoo's deal with its rival comes against the backdrop of a proxy fight. Activist investor Carl Icahn is trying to oust Yahoo's board. Separately, shareholders have filed lawsuits claiming they were hurt financially by Yahoo's failure to cut a deal with Microsoft.
That deal fell apart early last month, after the two sides couldn't agree on a price. Yahoo had second thoughts, but by then, Microsoft was no longer interested. That news sent Yahoo's stock down sharply Thursday.