Investors down as they take stock of Yahoo

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How low will it go?

That’s the question Yahoo shareholders are asking themselves as the stock price fell today to $17.75, the lowest in five years and nearly a dollar below where it was in May when Microsoft offered Yahoo $33 a share.

Yahoo rejected the $47.5-billion offer only to agree to it after Microsoft walked away.

The Sunnyvale, Calif., company argued that Microsoft’s offer undervalued the Internet pioneer. Now it seems the market is undervaluing Yahoo.

‘I am surprised that we haven’t seen more action from Yahoo in terms of doing things to create more shareholder value,’ Standard & Poor’s analyst Scott Kessler said.

To make matters worse for down-in-the-dumps Yahoo shareholders, the stock drop coincided with an analyst report predicting that the nation’s economic downturn would hurt display advertising sales.

Yahoo had hoped that its strength in display advertising could help fuel a comeback and competition with Google, which makes its money from text search ads. Yahoo must still clear regulatory hurdles to consummate a partnership with Google by which Google is going to sell ads alongside Yahoo search results. Yahoo has estimated that the partnership could boost annual revenue by $800 million.

Could Yahoo’s slumping stock price spell trouble for Yahoo co-founder and Chief Executive Jerry Yang? Yang drew investor ire for his role in the Microsoft negotiations and skepticism for his pledge to increase Yahoo’s net revenue by at least 25% in each of the next two years.

‘You’ve been Yanged,’ one disgruntled Yahoo shareholder wrote on -- where else? -- the Yahoo Finance message board today after the stock dropped.

Yahoo’s board has stood by Yang, but now it has three new members: billionaire activist Carl Icahn, who gave up a proxy fight in return for the seats, Frank Biondi Jr. and John Chapple.

And investors have made their feelings clear. In a vote at Yahoo’s annual meeting last month, nearly 34% opposed Yang’s reelection to the board and nearly 40% opposed Bostock’s reelection.

‘If Yahoo continues to over-promise and under-deliver, I imagine that management will become even more vulnerable,’ Kessler said.

Canaccord Adams analyst Colin Gillis says the true test for Yang will be this quarter’s results.

‘Yahoo does have a strategy,’ Gillis said. ‘They have to get out there and keep telling the story. They have to build up a long-term investor base.’

But as the stock sinks lower, Yahoo could find itself right back where it started: the subject of another takeover attempt, Gillis said.

For its part, Microsoft today put the chances of reviving its bid for Yahoo at ‘negligible.’

-- Jessica Guynn