Yahoo earnings pique VC interest

Silicon Valley watchers are paying close attention to Yahoo’s (Nasdaq: YHOO) earnings announcement Tuesday, as they anticipate the Internet company’s roughly $1 billion purchase of social networking startup Facebook.

Some Valley investors say that the deal, which has been rumored in the works since September, has already closed, but PE Week could not independently verify the transaction. The purchase price of Facebook has been rumored to be between $800 million and $1 billion. Talk about Yahoo’s supposed acquisition of Facebook comes just over a week after Google agreed to buy video upstart YouTube for $1.65 billion.

Facebook venture backer Jim Breyer, of Accel Partners, says, “I cannot comment on any specific discussions with partners.” But he adds that the startup continues “to make good progress on the business and financial metrics we have in place.”

Facebook investor David Sze, a partner at Greylock Partners, was traveling and could not be reached for comment. Palo Alto, Calif.-based Facebook did not respond to requests for information.

The startup has raised $38 million in two rounds, according to Thomson Financial (publisher of PE Week), and sources say its last round put its pre-money valuation at between $500 million and $600 million. The startup counts Accel, Greylock and Meritech Partners among its venture investors.

Meanwhile, Yahoo is expected to announce on Tuesday third quarter earnings of 11 cents per share, down from the 16 cents per share the company earned during the same period in 2005, according to the analysts surveyed by Thomson Financial. Thomas Weisel Partners recently downgraded Yahoo shares, citing, among other factors, competition from social networking sites. “Despite the uncontrolled nature of their user generated content, social networking sites, such as MySpace and even YouTube, appear to be attracting major marketing dollars of late,” a Weisel analyst report says.

Analysts did not respond favorably to news of a Facebook negotiation, citing Yahoo’s failure to capitalize on social networking with its Yahoo!360 offering. Analysts also say that the company might be paying too much—up to $70 per Facebook user. Analysts at CIBC World Markets say it could take more than four years to recoup such an investment in Facebook.