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Analyst: Microsoft could be Yahoo suitor

NEW YORK -- The chance that Yahoo Inc. will put itself up for sale has increased since the most-visited US website lowered its revenue forecast, according to Stanford Group. Microsoft Corp. is a candidate to buy the company, analyst Clayton Moran said.

"Given a seemingly increasing disconnect between management commentary and operating results, a sale of Yahoo seems more likely," Moran wrote in a note to clients. "In the near-term, we believe this stock will linger in the mid-$20s, unless a suitor arises."

Shares of Yahoo retreated to their lowest price since Jan. 3, losing $1.33, or 4.8 percent, to $26.20 in Nasdaq Stock Market trading. The drop was the most since April. They have slipped 19 percent in the past year, compared with a 39 percent gain in the Standard & Poor's 500 Information Technology index.

Yahoo is facing tougher competition: Google Inc. has extended its lead in Internet search queries, and new rivals have taken sales in display advertising, the company said when it reported second-quarter results after US markets closed Tuesday. The company forecast revenue for the rest of the year that trailed most analysts' estimates.

A Yahoo-Microsoft union "could be a significant challenger to Google and could increase Microsoft's competitiveness," Moran said.

Microsoft and Yahoo have held talks about a partnership designed to boost their share of the Web search and advertising market and catch up with Google, people briefed on the discussions said in May.

Yahoo has "dramatically underperformed" Google, which has gained market share in Internet searches and increased its technological edge, Moran wrote. Yahoo is also losing advertising to News Corp.'s MySpace and Google's YouTube, he wrote. Yahoo's diminishing share of the search market has contributed to six straight quarters of declining profit and the slowest sales growth since 2001.

Moran reduced his share-price estimate for Yahoo by 6.3 percent, to $30.