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What to do with Yahoo? On Tuesday night Carol Bartz presented her first set of quarterly results as chief executive. In January she inherited a company reliant on advertising in the depths of recession. Soggy top line numbers show that it still is. Attempts to restructure by her predecessor Jerry Yang had come to naught. Meanwhile the share price languishes at less than half the $31 Microsoft was prepared to pay for the company last year.

First, Yahoo needs to shrink. In spite of announcing another 700 job cuts, more costs need to come out, with unprofitable units binned. Even though revenues stagnated last year, the group continued to add staff up until the third quarter of 2008.

Second, is a decision on Yahoo’s Asian assets. Last week Yahoo sold a 10 per cent stake in South Korea’s Gmarket for $120m as part of its purchase by Ebay. But the urge to dispose of Yahoo Japan and Chinese online marketplace Alibaba should be resisted. Both fit well with Yahoo’s core business, and this would be a poor time to sell. Bernstein estimates that the stronger dollar, and weakness in the Chinese economy has cut the value of the two by 13 per cent to $7.7bn, or $5.53 per share.

Third, is striking a deal with Microsoft. Both trail Google so combining their search operations would improve the quality of search results, the appeal to advertisers, and most important, profitability. An exchange that sees Yahoo take over Microsoft’s display advertising business might be one way to a mutually satisfying arrangement.

Finally, Yahoo has a popular website that still attracted 144m unique users in the US alone in February. Ms Bartz needs to sustain and grow that audience, extend it to the world of mobile phone browsing, while cutting away the chaff. Simply put, but the work of years to achieve.

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