April 22 (Bloomberg) -- Yahoo! Inc. gets a chance today to show it's worth more than the $44.6 billion Microsoft Corp. is offering for the owner of the second most popular Internet search engine.

Sunnyvale, California-based Yahoo reports first-quarter earnings, and analysts forecast that sales, excluding revenue passed on to partner sites, may have gained 12 percent to $1.32 billion. The company has four days before Microsoft's deadline to agree to its offer or face a hostile takeover fight and risk a lower bid.

Since rejecting the $31-a-share proposal in February, Chief Executive Officer Jerry Yang sought other deals, presented a three-year growth plan, and introduced an online advertising program to convince investors that the bid was too low. Beating analysts' estimates may help wring as much as $4 a share more out of Microsoft, the world's largest software maker, said Ross Sandler, an RBC Capital Markets analyst who sees a Microsoft buyout as the most likely outcome.

``They're going to use this as an opportunity to prove that they are worth a little more than the lowball offer that Microsoft is making,'' said New York-based Sandler, who recommends buying Yahoo shares. ``They're just trying to save some face and extract some value out of it for shareholders.''

Net income at Yahoo probably fell for a ninth straight quarter, according to 19 analysts surveyed by Bloomberg. They predict a decrease of 16 percent to $119.3 million on average.

Taking On Google

Google Inc., owner of the most used search engine, reported profit that beat analysts' estimates last week as net sales climbed 46 percent in the first quarter to $3.7 billion.

Buying Yahoo would help Redmond, Washington-based Microsoft challenge Google in the $41 billion online advertising market, more than half of which comes from Web searches. Google captured 59.8 percent of U.S. queries in March, compared with 21.3 percent for Yahoo and 9.4 percent for Microsoft, according to ComScore Inc., a Reston, Virginia-based company that tracks Internet usage.

The acquisition would allow Microsoft to cut operating expenses by $2.25 billion a year, said Sachin Shah, an analyst at ICAP Securities in Jersey City, New Jersey, who covers mergers and special situations. That's more than double Microsoft's estimate. Those savings and the desire to retain Yahoo employees should prompt Microsoft to lift the offer to about $37 a share, he said.

Opportunity

``They need Yahoo's support and they need a friendly transaction,'' said Shah, who recommends buying Yahoo shares. ``Yahoo could use this opportunity to their benefit.''

Yahoo rose 2 cents to $28.57 at 12:12 p.m. on the Nasdaq Stock Market. Since jumping 48 percent on Feb. 1, the day of the bid, Yahoo shares are little changed. The cash-and-stock offer was 62 percent higher than Yahoo's close the previous day. Microsoft has dropped since then, bringing the value of the bid to $29.96 yesterday.

In a presentation to investors last month, Yahoo pointed to investments in Asia, its No. 2 position in Internet searches and potential cost savings of the deal to show the company is worth more. Yahoo said sales will climb at least 19 percent in each of the next two years, topping analysts' estimates.

Microsoft responded April 5, saying a slowing U.S. economy had hurt the Internet business. CEO Steve Ballmer threatened to nominate an alternate slate of board members and possibly lower the bid if Yahoo failed to agree to terms in three weeks, or by April 26.

`Last Gasp'

Two days later, Yahoo again demanded a higher bid.

``It's their last gasp,'' said Jay Welles, an analyst at Fairport, New York-based Manning & Napier Advisors Inc., which oversees $17 billion, including Microsoft shares. ``I'm not sure how much more leverage they're going to gain here, unless their business really improved over the past few weeks.''

In seeking alternatives to Microsoft, Yahoo was close to a deal two weeks ago to gain control of Time Warner Inc.'s AOL and give Time Warner a 20 percent stake in the combined entity, said a person with knowledge of the talks. Yahoo would have received an investment from New York-based Time Warner, letting Yahoo buy back billions of dollars in stock, the person said.

In a separate deal, Yahoo agreed to use some search advertising links sold by Mountain View, California-based Google for up to two weeks. Yahoo also introduced a program that lets clients place ads on more Web sites using a single application.

The other options aren't compelling enough for investors to let the offer from Microsoft go, Sandeep Aggarwal, a Collins Stewart LLC analyst in San Francisco, wrote in a note last week. He put 55 percent odds on a friendly deal being reached before the deadline and 45 percent on a ``less amicable solution'' by July.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: April 22, 2008 12:21 EDT