Yahoo has released a three-year financial forecast and said that it expects revenue to grow by 19 per cent a year for the next two years.

Analysts believe the move is a thinly-veiled attempt to persuade shareholders to sit tight and Microsoft to raise its initial $42 billion (£20 billion) bid with the bold assertion that the initial bid “substantially undervalues” the company.

Yahoo has said that it expects to increase revenue from $5.7 billion in 2008 to $8.8 billion by 2010. Yahoo also expects to double its operating cash flow from $1.9 billion to $3.7 billion in the same time frame.

Bullish

To come true, such bullish projections would require Yahoo to outpace the rest of the market though. And given the current world economic outlook, few would be willing to bet their house on that happening.

Whether Yahoo’s latest salvo of positive financial thinking carries any weight with Microsoft remains to be seen. However, it comes on the back of the news that Yahoo shares enjoyed their highest rise since the Microsoft offer was first made, gaining $1.15 a share – a rise of 4.45 per cent.

Stearn warning?

On a not entirely unrelated note, Forbes today notes that one of Microsoft’s “senior advisers” over the proposed Yahoo acquisition turns out to be none other than the chief executive of Bear Stearns. That's the US bank that, according to Forbes, “will go down in history as a victim of its own aggressive borrowing”.

As the US (and the rest of the world) stares economic freefall in the face, it’s becoming increasingly difficult to decide which looks sillier: Microsoft’s original valuation, or Yahoo’s bold attempts to inflate it still further.