Yahoo!'s share buyback - a gutless decision

Yahoo! Inc. (NASDAQ: YHOO) announced mediocre earnings, as expected, and said it would buy back $3 billion of its shares.

The company said it was the best use of its cash.

Terry Semel and his management team should be ashamed. For $3 billion, the company could have bought YouTube ($1.65 billion) and MySpace ($565 million) and have money left over. The buyback is a gutless way out of a tough situation. By contrast, the company could have said it would use $3 billion to make acquisitions. News Corp (NYSE: NWS) has taken the plunge, with excellent results, and while the jury is still out on YouTube, at least Google Inc. (NASDAQ: GOOG) was willing to make a strategic bet on video.

Yahoo! had 129.7 million unique users in September according to ComScore.
Google had 107.4 million and YouTube had 20.8 milion. So, the new combined companies have caught Yahoo!.

What could Yahoo! buy to get back in the game? Photobucket has 14.7 million unique users. Yahoo! is already in the online photo business with Flickr and Yahoo! Photos. The Weather Channel, owned by Landmark Communications, has 33.3 million unique visitors. Yahoo! is also already in this business. Would Landmark sell it and keep the cable rights to The Weather Channel? Could be.

Yahoo!'s M&A strategy has been embarrassing, but it is not too late.

Douglas McIntyre is a partner at 24/7 Wall St.