Yahoo analysts play deal or no deal on Microsoft search pact

Yahoo's first quarter earnings conference call was a humdinger---and possibly designed that way. 

Everyone knew Yahoo's quarter would be so-so at best (Techmeme). And everyone knew attention would be focused on potentially outsourcing search to Microsoft. Yahoo CEO Carol Bartz did quite a dance. She hinted that outsourcing may make sense to Yahoo. Called search critical to the company. And then dropped the F-bomb on the call just so finish off an hour of deflection. 

It's unclear whether Yahoo's earnings call dance was choreographed but it was quite effective at confusing the hell out of people. 

First, Bartz says Yahoo wants to deliver a wow experience for users. That means doubling down on winning properties and "discontinuing products that generate limited user interest or maybe improve by outsourcing with partnering."

And then.

I am well versed enough in the search business at Yahoo! to say it is absolutely critical to Yahoo! It is critical to our customers and partners that they have a combined search display experience on the Internet and so I haven’t changed my position on that. Relative to anything else with Microsoft I actually have no comment.

And.

Back to investment, absolutely we need to invest in both search and display and the monetization of those. When I talk about ad platforms it really is a combination of things. It is better customization and visibility for our advertisers and it has to be a lot easier. By the way it again somebody asked earlier about ad network and so forth. All of this is an opportunity and it all points back to work on our ad platforms. You asked if we need to be principle in search which is one of these little tricky questions which I am not going to answer directly. What I am going to tell you is I remain obstinate on the point that search is important to our users. Search is important to our customers and it is that simple.

And finally the F-bomb. Bartz was talking about how Yahoo had one product person for every three engineers and it was killing progress. "So we had a lot of people running around telling engineers what to do but nobody is f***ing doing anything," said Bartz. "So, excuse me. I knew that would slip out one of these times. So, the point of the matter, first we are getting all the engineers on the same page. We are getting rid of a lot of those product people that you know whatever."

Those moving parts left analysts a bit confused over what to make of Bartz's performance. 

Bernstein analyst Jeffrey Lindsay writes:

Possibly one of Yahoo!'s stranger earnings calls seemed to excite the after-market – the stock was up almost 5% in after-hours trading. The company’s 1Q:09 operating performance was poor - revenues of $1.58 billion were down -13% YoY, technically lower than consensus but thanks to cost and expense reductions in the quarter earnings were in line with analyst's expectations of $0.08/share. Operating profit of $101 million was ahead of estimates by 10%. The call did little to shed any light on management's strategy other than to cut headcount by 5%, outsource some under-performing businesses and generally wait until the economy improves. CEO Carol Bartz did, however, manage to slide in a profanity at the end of the call which effectively deflected attention away from repeated attempts by the analysts to winkle something out of her about the much-rumored paid search negotiations with Microsoft. 

Piper Jaffray analyst Gene Munster got a little more out of the call. 

While Bartz did not outline a specific plan to address the issues, we hope to see improvements emerge within the next six months. The focus of user improvement efforts will be on the Homepage, Mail, Sports, Finance, and Mobile verticals. We expect Bartz to fund improvements partially through the reduction of non-core products (beginning meaningfully in the current quarter), coinciding with the announced 5% headcount reduction (about 675 employees). Finally, we note that Bartz did not offer any specific comments on a deal with Microsoft, but we continue to expect a deal in the next six months.

Jeffries analyst Youssef Squali added:

While management skirted the Microsoft issue, we remain convinced that a search deal, perhaps a swap deal between Yahoo/Microsoft, would be a win/win for both companies as it would make Yahoo! the undisputed leader in Display and MSFT a viable #2 in Search.

Add it up and no one---perhaps even Bartz---knows what's going on with Yahoo and Microsoft. But a lot of folks are hoping for a Microsoft deal.