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Yahoo 'Faced' in Social Network Indecision?

Yahoo might regret losing its chance to buy its way into the lucrative social-networking market, a report published this week by Needham & Company says.

Mark May, financial analyst with Needham, said he couldn't comment beyond his report, which says backed off its efforts to acquire Facebook too soon and underestimated the social network's potential for growth and monetization.

Citing press reports and "industry contacts," May said Yahoo first valued Facebook at $750 million during last year's first quarter. Yahoo was then prepared to offer $1.62 billion to buy the social network but could never get the company back in negotiations. This wouldn't have mattered, because, May said, the projections Yahoo used to value Facebook at that number were too conservative.

Yahoo projected Facebook would have 22 million registered users by the end of 2007 and that total page views per active user per month would reach 1,061. But May said Facebook sees nearly 2,329 average monthly views per active users, and that with Facebook adding 120,000 new users per day, the site is on pace to exceed Yahoo's year-end projection of 22 million users.

May said that Yahoo's failure to appreciate Facebook's growth potential will hurt the company because of the social network's ability to grow and connect advertisers with a key demographic.

"Yahoo must take steps to gain a more meaningful leadership position in social networking or risk not participating in what could be one of the fastest growth segments in the consumer Internet sector over the next five-plus years," May said in the report.

Yahoo and Facebook did not return requests for comment.

Last year saw social networking hit its stride and become a potential gold mine for would-be investors. In June, MySpace became America's most popular Web site, representing 4.46 percent of all Internet traffic during the month, also according to a Hitwise.

Despite his negative view on Yahoo's handling of the Facebook situation, May is optimistic about the places it might go.

"We continue to like the company's position in other segments of consumer Internet and media and believe an improved search marketing platform could drive our estimates higher."