Microsoft Inc. (MSFT) should sell its Bing search business to Facebook Inc. (FB), a deal worth about $5 billion that would help both companies compete with Google (GOOG) Inc., said Rick Sherlund, an analyst at Nomura Equity Research.
“If their real motivation for being in the search business is to prevent Google from having complete market dominance, Microsoft would be better off working with Facebook,” Sherlund said today in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
Sherlund said Microsoft, the world’s largest software maker, has “clearly lost” the battle for search market share to Google and could boost earnings by 6 to 8 percent by eliminating the “drag” of Bing, he said. Facebook would also benefit from a partnership, Sherlund said.
“Facebook needs to be in the search business,” Sherlund said. “It’s an enormous monetization opportunity for them.”
Microsoft already owns almost 2 percent of Facebook, making a future agreement more likely, he said. The company would probably get back about 80 percent of monetized search traffic from Facebook with none of the associated costs, according to Sherlund.
He estimated a $5 billion purchase price for the Bing unit, or two times 2011 annual sales of $2.5 billion for Microsoft’s online services division. Sherlund projected that Microsoft will lose $2 billion from Bing this year, amounting to about a six percentage-point impact on its operating margins.
“Instead of being a depressant on margins it would be all profit to them,” Sherlund said. “They’re better off if their objective is to introduce more competition to Google, if they can leverage the Facebook relationship.”
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