Yahoo Inc investors are disappointed it could not milk more money from Microsoft Corp, but said they were relieved a deal was struck that would allow Yahoo to focus on its other, stronger businesses.

The companies signed a 10-year pact on Wednesday under which Microsoft will power search queries on Yahoo's sites and Yahoo's sales force will be responsible for selling premium search ads to big buyers for both companies.

Yahoo shares fell more than 12 percent during the trading day because investors felt they got a raw deal. Prior to the announcement, some had expected Microsoft to pay up to $5 billion in upfront fees to Yahoo.

It was disappointing, based on expectations, said Ryan Jacob, who owns Yahoo shares through his Jacob Asset Management. I wish they (Yahoo) could have gotten better terms.

Investors lamented that Microsoft paid Yahoo no money upfront and that it will share only 88 percent of search revenue from Yahoo sites with Yahoo.

I was surprised at their decision to give the milk for free rather than forcing Microsoft to buy the cow, said Eric Jackson, a former Yahoo investor, who sold off his holdings in September after Yahoo turned down Microsoft's $47.5 billion buyout offer.

Yahoo should have fought harder for a big upfront, similar to the search proposal Microsoft initially suggested last year after it failed to buy all of Yahoo, Jackson added.

Jackson, who now owns Microsoft stock, does not regret selling his Yahoo shares because the search pact, is a great deal for Microsoft, not so much from Yahoo's perspective.

Other Yahoo investors still held out hope for a full acquisition by Microsoft, or at least a search deal that would add value to Yahoo's share price. How much value this deal brings to Yahoo is not immediately clear.

The sentiment was that deal would include as much as $3 billion to $5 billion of upfront, based on what sell-side analysts were saying, said a Yahoo investor, who spoke on condition of anonymity. That's several dollars of value that goes off Yahoo's share price immediately.

Still, investors and analysts said the long-term benefits to Yahoo of partnering with Microsoft outweigh the short-term losses, especially in light of Google Inc's leading position in the search market.

They are keen for Yahoo to focus on developing its huge portfolio of websites and generate more revenue from selling advertising space on them, known as display ads, rather than battling market leader Google on Web search.

The lack of an upfront payment and of cash flow guarantees, of a display relationship and complex systems integration are short-term negatives, wrote Jefferies & Co analyst Youssef Squali in a research note.

But Yahoo can now save on search technology expenses and add to earnings. It also frees up management to focus exclusively on display advertising, where (Yahoo) clearly has an edge, Squali said.

Some analysts also said Yahoo Chief Executive Officer Carol Bartz was under pressure from investors to sign a search deal with Microsoft and move on after talks had dragged on for 18 months.

This doesn't get them close to Google, but it's somewhat better for the market, said Ned May, an industry analyst with Outsell Inc. There was such relentless pressure from Wall Street, they had to do something.

With the Microsoft distraction tended to, investors are hoping Bartz will focus more intently on the challenge of turning Yahoo around.

They have some good strengths -- communication products, different verticals, Yahoo News, Yahoo Sports -- where they're number one across the board, said Jacob. These are the areas really where they should be focusing and spending the money.

Yahoo, which recently reported quarterly earnings slightly ahead of Wall Street's expectations, has steadily cut costs in recent months. Bartz said on the earnings call the company is now hiring more engineers and sales and marketing staff as it invests in new products and branding.

(Reporting by Anupreeta Das; editing by Tiffany Wu and Andre Grenon)

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