Yahoo Shares Continue to Plunge–But Where Is Microsoft?

If Microsoft won’t take another bite at Yahoo at these amazingly low prices, BoomTown is now thinking of making my own bid for the troubled Internet company.

Shares of the much pummeled Yahoo dropped once again today–and not because of the overall market–due to worries about its display advertising business. Its market cap is now just $19 billion.

This is, I think we can all agree, astonishing. But not in a good way.

Yahoo fell to a five-year low of $13.20, before rebounding–if you could call it that–to close this afternoon at $13.76, down 82 cents or 5.6 percent.

Why? Well, two analysts cut price targets, with one holding out the vain hope that Microsoft (MSFT) would rebid for Yahoo (YHOO).

“As Yahoo shares decline and Microsoft struggles in its online services business, it is increasingly likely Microsoft will make a new offer,” said American Technology Research’s Rob Sanderson.

Sorry to burst your pretty balloon, Rob, but that’s not going to happen, according to my sources at Microsoft.

Instead, Microsoft plans to wait to see what happens in Yahoo’s merger talks with AOL, an online unit of Time Warner (TWX).

As I wrote:

Let’s be clear–Microsoft wants nothing else from Yahoo anymore, according to numerous sources, even though it made a noisy and ultimately failed attempt to buy the Internet giant. It will not be making another bid, sources said, echoing Microsoft CEO Steve Ballmer’s public and internal pronouncements on not revisiting another Yahoo takeover bid. But Microsoft is hoping that if Yahoo and AOL merge, the new company will see that its fate lies more in its advertising, content and communications businesses, and not in search. Microsoft is also figuring that regulators will not allow AOL to continue its search ad partnership with Google, a deal that the software giant lost out on. As part of that deal, Google got a 5 percent stake in the AOL unit. But, once AOL is combined with Yahoo, execs at Microsoft hope it will give them the in they have been looking for to reignite failed talks with Yahoo over a search deal that Google also won.”

Of course, one has to wonder why Microsoft is being so stubborn, especially at these plunging prices. It is as if the software giant simply hopes Yahoo will just wither and die.

And maybe that is its strategy, to then become the de facto No. 2 to Google (GOOG), whose own shares are taking a beating due to ad concerns.

After all, the sector will come roaring back at some point–does anyone doubt the inevitable trend of online advertising? And then those with a little patience will emerge as eventual winners.

But why highhandedly pass on what is still a choice property, despite its distress? Microsoft Founder Bill Gates’s best buddy, investor Warren Buffett never does!

While integration and regulatory issues related to a Yahoo takeover have always been a major concern to Microsoft, it now has to be a lot about pure emotion for Microsoft CEO Steve Ballmer.

He offered Yahoo CEO Jerry Yang $31 a share less than six months ago. Now, apparently, Yang and Yahoo can go fish.

Or, as the case might be, sleep with the fishes.