Nov. 6 (Bloomberg) -- Yahoo! Inc.investors are running out of patience with Chief Executive Officer Jerry Yang after back- to-back failures in his negotiations with Microsoft Corp. and Google Inc.

``This is a classic case of the company needing new blood,'' said Anthony Valencia, an analyst at Los Angeles-based TCW Group Inc., which oversees $118 billion in assets, including Yahoo shares. ``It's a property that, with the right management, could be turned around.''

Yahoo should push for a new buyout offer from Microsoft or bring in outside leadership, Valencia said. It isn't too late for a new CEO to take advantage of Yahoo's assets, including its base of worldwide users and $3.3 billion in cash, he said.

Google backed out of a plan yesterday to sell ads on Yahoo's pages after the Justice Department threatened to block the agreement, which Yang championed as a way to revive flagging sales. Yang rejected Microsoft's takeover offers of as much as $47.5 billion, or $33 a share, earlier this year. Yahoo stock traded as low as $11.25 last week.

``He's between a rock and a hard place because he's out of options,'' said Jeff Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. ``If Microsoft comes back with another offer, he might just have to accept.''

Yahoo, owner of the second most-popular U.S. search engine, rose 4.4 percent yesterday in Nasdaq trading on speculation the Sunnyvale, California-based company may reopen discussions with Microsoft. The shares have dropped about 41 percent since June 12, when talks with Microsoft ended and Yang struck his deal with Mountain View, California-based Google.

Slowing Growth

Yahoo's sales growth, excluding revenue shared with partners, slowed to 3 percent last quarter, down from 14 percent a year earlier. Profit has dropped in 10 of the past 11 quarters. Billionaire investor Carl Icahn threatened a proxy fight, and investors withheld about a third of their votes for Yang's re-election to the board in August.

``I don't regret any minute of what happened, even though it wasn't the most fun thing to go through,'' Yang said yesterday at a conference in San Francisco. He said the company is making progress on plans laid out last year and is open- minded about forging deals.

Yang, who turns 40 today, took over from former CEO Terry Semel in June 2007, and pledged at the time to dig in for the ``long-haul.'' Yahoo Chairman Roy Bostock said yesterday he stands behind Yang.

``Nobody knows this company better than Jerry, and he is the right person to be leading Yahoo,'' Bostock said in a statement. He said he has full confidence in Yang and that Yahoo has made significant progress under extraordinary circumstances.

Yahoo rose 4 cents to $13.96 at 4 p.m. New York time in Nasdaq Stock Market trading. Google lost $11.02 to $331.22, while Microsoft declined $1.20 to $20.88.

Google's Power

Microsoft, based in Redmond, Washington, had criticized the proposed tie-up between Google and Yahoo, saying it would give Google too much market power. Google fields about two-thirds of U.S. Web search queries, three times the amount of Yahoo, according to ComScore Inc., a research firm in Reston, Virginia.

Yahoo sought the Google agreement to help expand the number of advertisers that buy promotions next to Web-search results. Google's dominance of the market helps it command higher prices and attract more ads, Yahoo has said.

The partnership would have given Yahoo as much as $450 million a year in operating cash flow in the first year, Yahoo estimated. The company said yesterday that while it was disappointed by Google's decision to withdraw, the agreement was only ``incremental'' to its own products.

``The Google withdrawal is another black eye for Jerry,'' Youssef Squali, an analyst at Jefferies & Co. in New York, said yesterday in a note to clients. Icahn's seat on the board means Yang can't maintain the status quo and the most likely outcome is that Yahoo forges an agreement with Microsoft, he said.

AOL Option?

Yang may pursue a merger with AOL, the Internet unit of Time Warner Inc. The companies have talked since at least April about a combination, and Yahoo executives said last month they were saving cash for potential acquisitions.

The worsening economy is causing advertisers to restrain their spending, further complicating Yang's turnaround plan. Last month, the company announced at least 1,500 job cuts and lowered its forecast for 2008 gross sales to a range of $7.18 billion to $7.38 billion, citing deteriorating conditions in the online ad market.

``Yahoo investors have seen the stock materially underperform,'' Valencia said. ``We've still not seen any real sign of a turnaround.''

To contact the reporters on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net.

Last Updated: November 6, 2008 16:26 EST