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Tickers in this Article: YHOO, GOOG, AAPL, MSFT, SNDK, MNST

Last November, a senior manager wrote a memo to his bosses at Yahoo (Nasdaq: YHOO) suggesting that the company was in too many businesses.

His recommendations included cutting 15% of the company's staff and exiting ventures that brought in little money. Subsequent to the memo being leaked to the press, several key Yahoo executives left.

Yahoo! Takes a Beating
Wall Street's impression of Yahoo has been that its online advertising business has been slowing as the text advertising business at its major search competitor, Google (Nasdaq: GOOG), has been rising rapidly. Over the last two years, Google's stock is up about 150% and Yahoo's is down slightly.

Yahoo's revenue has slowed. Last winter the company admitted that display advertising was weak, and Q4 numbers pushed the stock down. The company's revenue, which went from $3.6 billion in 2004 to $5.3 million in 2005, rose to only $6.5 billion in 2006.

No question, revenue growth is decelerating. Management has forecast that the topline might only grow by low single digits in early 2007.

Yahoo has also been late in releasing its answer to Google's search-driven text ad business. The project, called Panama, was to be out last year. Instead, it launched two months ago. While early figures on the product are positive, it is still too early to tell whether it will help jump start Yahoo's growth.

Yahoo has one problem that it may not be able to overcome. Most online audience measurement services put Google's share of the search market at 45% to 50% and Yahoo at half that figure.

What to Do, What to Drop

Recently, Yahoo announced that is will launch a WIFI MP3 player with storage company Sandisk (Nasdaq: SNDK), yet Apple (Nasdaq: AAPL) appears to have that segment of consumer electronics wrapped up with the iPod. Even Microsoft's (Nasdaq: MSFT) new Zune player is not making much headway. But, Yahoo sees the MP3 market as a way to improve sales at its music download store.

Yahoo is also trying to launch search capacity on cell phones by teaming with as many handset and service providers as it can. It hopes that it can get ahead of Google in the handheld market to offset its problems with the falling PC-search share.

Yahoo has a significant presence in online jobs, photo sharing, video downloads and streaming, online finance, shopping, music, personal ads, news and sports coverage, health, and online maps. This begs two questions: Can they all make money? Can management keep track of so many offerings?

The fact is that in some of these segment's competitors do better. The online jobs business is an example. Monster (Nasdaq: MNST) is the leader in that business, and other companies like Career Builder do well. In the photo sharing business, PhotoBucket is much bigger than the Yahoo! service. Finally, in online classifieds, companies like Craig's List have a very large portion of the market.

All Things To All People
It is hard to find a business where a company can perform dozens of functions for the same consumer. Yahoo may still be finding that out the hard way. And, it still does not appear to have learned the lesson.

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