Why Yahoo Is on a Dealmaking Binge

Less than three minutes into an interview at Yahoo!'s (YHOO) Sunnyvale (Calif.) headquarters, Chief Executive Carol Bartz is eager to tell reporters how she would grade her first-year performance: She gives herself a B-. Dealmaking may help her work up to an A.

"You're going to see more acquisitions this year," says Bartz, 61, who in January 2009 replaced Jerry Yang as CEO of Yahoo, the Web portal that organizes online information, provides e-mail, and sells Internet advertising. Potential targets include overseas companies and data analytics businesses that help companies assess their advertising results, she says. "Last year people talked about, 'Oh, Yahoo is trying to get smaller,' " Bartz says. "We were never trying to get smaller. We were just trying to get more focused."

Yahoo's priority is stemming a yearlong sales slump and staying relevant as upstarts Twitter and Facebook reshape how people communicate, and rival Google increases its lead in search-related ads. "It's really important, especially as the economy starts coming back," that Yahoo step up dealmaking, says Gartner (IT) analyst Andrew Frank. Bartz, previously CEO of Autodesk, says she's interested in ways to bolster Yahoo's local content. "Local is extemely important," she says in response to a question about whether Yahoo might try to buy Yelp, which lets users post reviews of nearby businesses. "People do some outrageous percentage of their commercial spending five miles from their home." Google recently halted talks to buy Yelp, says a person familiar with the negotiations.

Bartz is interested in purchases that bring Yahoo more users, "whether it's a place like Mexico, a place like Brazil," she says. In 2009 Yahoo bought Arabic Web site Maktoob.com and, with a partner, Australian travel site totaltravel.com.

Yahoo is also preparing to collaborate with Microsoft in Web search and advertising. The deal, which is awaiting regulatory approval, would let Yahoo cut capital spending by a projected $200 million. Gene Munster, an analyst at Piper Jaffray (PJC) in Minneapolis, says Bartz may be able to lift annual sales growth to 10%. "We believe in Carol Bartz and believe that she is going to get the revenue growth to a point that's acceptable," he says.

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