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DRJ's Blog

November 19, 2012

If Facebook teams up with Yahoo, who wins and who loses? That's the question today after the Sunday Telegraph in London reported that Yahoo CEO Marissa Mayer is talking to Facebook COO Sheryl Sandberg about uniting the companies' search and social-networking into an online behemoth with more than 1 billion users. That infusion of traffic could give a major boost to YHOO's search, help it recruit top-level developers, and even pose a real competitive threat to Google. FB, meanwhile, has wanted to grow in search to monetize its huge footprint, so the deal could be a win-win for the two companies. The big loser could be Microsoft, which currently has a deal to power YHOO's search with its Bing service. According to the Telegraph, Yahoo hasn't been totally happy with the agreement. Traders have already been sensing that something was up. FB has climbed 24 percent over the last month, and YHOO is up 12 percent in the same period. GOOG and the S&P 500 are both down 7 percent, while MSFT has fallen 10 percent. The implied volatility in FB weekly options has moved up to 52 percent from an average of 47 percent. Similarly, the volatility in YHOO options has surged nearly 10 percent in November options and 20 percent in December. Both FB and YHOO continue to trade well above average turnover of calls versus their 30-day and annual averages. In other words, the street has been betting bigger and bigger that something positive was brewing in both names.
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