Yahoo! Should Buy Dow Jones And Double Its Own Profitability

The earlier blog post about YAHOO (YHOO)/DJ (DJ) combo is now fleshed out as a full column on Real Money:

All things considered, a combination of Yahoo! and Dow Jones makes much more sense than either a News Corp. (NWS)/DJ pairing or the recently rumored Microsoft (MSFT)/Yahoo! coupling.

The Microsoft/Yahoo! combination makes the least amount of strategic sense. Mister Softee gets less than 5% of its revenue from its online properties. As noted above, Office, various flavors of Windows and SQL generate the lion's share of both revenue and profits. Some analysts have even argued that the entire Web side of the business has been a giant money-losing distraction to the Redmond, Wash., behemoth.

If Microsoft CEO Bill Gates and Yahoo! CEO Terry Semel agree with that assessment and Yahoo! grabs Dow Jones, (pardon the dirty word) the synergies make a lot of sense. It gets a primo media property that has a growing Web presence that fits into Yahoo's existing business model. And, it creates a broader network to serve ads, both online and off. It's a strong way to combine the highly-sought-after, high-income demographic of the Dow Jones properties with the high-volume Web traffic Yahoo! generates.

It also adds some bulk to an entity falling increasingly behind arch nemesis Google (GOOG) in the online advertising space. Yahoo! could add another $1.783 billion per year in revenue -- a nearly 30% bump for the firm, which did $6.4 billion in total revenue in fiscal 2006 -- and it also adds another $386 million in profits, a number that almost doubles Yahoo!'s profitability.

Yahoo sports a trailing price-to-earnings ratio near 60, while Dow Jones trailing P/E ratio is near 18. If Wall Street puts an online multiple on the revenue, it raises the potential stock price of the combination dramatically.

The full piece is up on RealMoney.com. I'll see if it will get moved to the free site . . .

Source:
Yahoo! Should Buy Dow Jones
RealMoney.com, 5/8/2007 9:40 AM EDT
http://www.thestreet.com/p/rmoney/media/10355436.html