Jan. 30 (Bloomberg) -- Yahoo! Inc., the Internet search engine that cut jobs after losing market share to Google Inc., may be a takeover target following a 38 percent drop in its stock price in the past three months, analysts say.

Yahoo's potential as a target may, in turn, make it an attractive investment, Bear Stearns & Co. analyst Robert Peck and Citigroup Global Markets Inc. analyst Mark Mahaney said today in notes to investors. The Sunnyvale, California-based company operates the second-most popular search engine.

Some analysts have named Microsoft Corp. as a potential bidder for Yahoo, whose investments in advertising technology have failed to cut Google's lead or win business lost to social- networking sites. Yesterday, Yahoo announced plans to eliminate 1,000 jobs after eight straight quarters of declining profit.

``We're going to begin to hear the tom-toms again that Yahoo will or ought to be merged with Microsoft, which would make a lot of sense,'' Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis, told Bloomberg Radio. ``If you were to combine these two, they would be a formidable second player.''

In September, Peck wrote that Microsoft, which operates the third-most popular U.S. search engine, was evaluating Yahoo as a target. While Peck has since lowered his target price for the stock to $24 from $30, he has maintained his ``outperform'' rating on the shares, citing buyout potential. A bid of $40 a share would be ``reasonable,'' he said.

Growing Search Share

Microsoft's share of Internet queries rose to 13.8 percent in December from 12 percent the month before, according to Nielsen Online. Google, with 56.3 percent, and Yahoo, with 17.7 percent, both experienced declines.

Yahoo is ``one of the largest Internet advertising assets out there,'' San Francisco-based Mahaney told Bloomberg Television. ``You can see the strategic fit. You can also see that maybe a traditional media company may want to take a shot.''

An acquisition has less than a 50 percent chance of going through this year because of Yahoo's large size, Mahaney said.

Mahaney, who recommends holding the shares, is the third- ranked Internet analyst according to Institutional Investor magazine.

After falling 18 percent this month, Yahoo has a market value of $25.5 billion, less than half that of Time Warner Inc., Walt Disney Co. or News Corp.

Yahoo fell $1.76, or 8.5 percent, to $19.05 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest drop since April. Redmond, Washington-based Microsoft, the world's largest software maker, fell 40 cents to $32.20.

Yahoo spokeswoman Diana Wong and Microsoft spokeswoman Luisa Gass declined to comment.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: January 30, 2008 16:11 EST