Google earnings surprise may give Yahoo leverage

NEW YORK (Reuters) - An earnings windfall for Google Inc should benefit rival Yahoo Inc in buyout talks with Microsoft Corp, as investors view the results as proof of a robust online advertising market.

Yahoo is entering a critical week as it prepares to report quarterly results on Tuesday and faces a Microsoft-imposed deadline to accept the nearly $43 billion offer.

The software maker has cast doubt on whether Yahoo is even worth that much with a weakening U.S. economy and general slowness in the ad industry. Google's strong showing could help its rival Yahoo stand firm on a higher takeover price on hopes Web marketing is more durable in a downturn.

Industry analysts say Yahoo's first-quarter results are going to be a major swing factor in its talks with Microsoft.

"The one thing that can really change Microsoft's thought process on valuation is if they can come in with good results," said Ross Sandler, analyst at RBC Capital Markets. "We think there is a decent likelihood of upside from Yahoo this quarter."

Yahoo forecast first-quarter net revenue at $1.28 billion to $1.38 billion. Analysts, on average, are expecting profit of 9 cents per share, excluding special items, on revenue of $1.32 billion, according to Reuters Estimates.

Google on Thursday reported a better-than-expected profit and revenue growth of 42 percent. It said client spending had not been hurt by economic concerns, sending its shares up nearly 20 percent to $538.43 on Friday. Yahoo rose 1.7 percent to $28.51.

"In terms of today and next week, there's going to be a lot of upward momentum for all of the Internet companies" who rely on ad revenue, Sandler said. «more»