Yahoo!'s (YHOO) second quarter earnings were weak. Sales were down 13 percent. Cost-cutting was essential to the portal company's profits, which were minuscule. Carol Bartz, the new CEO, made a great deal of noise about the web site's new design. Yahoo! then gave guidance that was ugly and tentative.
Lost in all of the excitement about Yahoo!'s future was the single fact that if Microsoft (MSFT) does not make an offer to tie up its search business with the No. 2 search company, Yahoo!'s shares will go from over $17, where they trade now, straight back to $11, where they traded six months ago -- a 35 percent drop. Yahoo!'s dependence on the display ad market is an Achilles heel, particularly if the new Microsoft search engine, Bing, keeps gaining ground.