Yahoo shares dip, after earnings report and Microsoft threat

Update: Wednesday, April 23, 11:22 am PT:

Here's a Bloomberg News video link that captures Ballmer's presentation Wednesday, in which he discusses the possibility of Microsoft walking away from its Yahoo offer.

Yahoo shares headed a bit south when markets opened Wednesday, as analysts posted lackluster reviews on its first-quarter results and, in at least one case, lowered recommendations.

Adding a drag on its stock performance were comments Wednesday from Microsoft's chief executive, Steve Ballmer, who said the software giant is unlikely to raise its buyout bid for the Internet pioneer and is "prepared to move forward alone without Yahoo," according to a Dow Jones report.

Shares of Yahoo were down 2.38 percent, or 68 cents, to $27.86 a share in early morning trading. They gained back some ground a bit later to trade at $28.27, down 0.95 percent.

Several analysts weighed in with their view that Microsoft has little incentive to raise its initial buyout bid, which was valued at $31 a share on February 1.

"With Yahoo likely to continue to drag its feet on any deal with Microsoft, the risk of a long regulatory approval process before the deal can close, and little chance of a higher offer coming from either Microsoft or another bidder, we are revising our rating on Yahoo to 'Neutral' from 'Outperform,' " Heath Terry, a Credit Suisse Securities analyst, said in a research note.

Analysts with the Stanford Group, meanwhile, are increasingly becoming convinced that Microsoft will "go hostile" in trying to acquire Yahoo. Nearly three weeks ago, Ballmer sent a letter to Yahoo with an ultimatum to make a deal, or to face a proxy fight for control of its board and direct solicitation to its shareholders. Yahoo's deadline to conclude a deal is Saturday.

Yahoo, during its earnings conference call with analysts Tuesday, displayed a "greater willingness" in its comments to negotiate on price, Citigroup Global Markets analyst Mark Mahaney said in his research note.

A number of analysts, such as Benjamin Schachter of UBS Securities, assert that Yahoo's share price will trade based on the prospect of a Microsoft buyout versus its performance for the quarter or its forecast guidance.

"We don't believe that anything in last night's report changes the outlook for the deal and we continue to believe that Microsoft will increase its bid or perhaps make it an all-cash deal valued in the $32 to $35 range," Schachter said in his research note.