Yahoo’s surprise three-year forecast announcement on Tuesday lays out why the Internet giant has refused to budge from its belief that Microsoft’s bid severely undervalues the company.

The Sunnyvale, Calif. company believes it can nearly double its operating cash flow to $3.7 billion and boost revenue, excluding payments to affiliates, to $8.8 billion. Built into the forecast is an expectation of $1.9 billion of additional revenue over three years in display video advertising revenue, outpacing market growth rates, Yahoo said.

It also reaffirmed previously issued first quarter and full year 2008 forecasts.

Yahoo Chairman Roy Bostock:
“We are pleased to share with the market more details about our business and our expectations for Yahoo!’s financial performance, which provided context for our board’s unanimous rejection of Microsoft’s unsolicited proposal. Yahoo! represents a truly unique strategic platform within our industry. The board of directors and management will continue to work closely together to ensure that any strategic path we pursue capitalizes on that uniqueness and value in a way that maximizes the benefit to our stockholders.”

Your move Microsoft.

(Reuters)

Keep an eye on:

• In case investors wondered why the New York Times settled with dissident shareholders, look no further than its February monthly report, which showed a 6.6 percent ad revenue decline. (Reuters)
• EBay has set up its own affiliate network to encourage Web sites to drive traffic to its eBay and Half.com Web sites, reducing its reliance on ValueClick’s network. (Reuters)
• Slate, the online news and opinion magazine owned by The Washington Post Co, plans to join a bustling business news market with an analysis and commentary site. (Reuters )
• Retail data suggest a lousy quarter for Apple’s MP3 players. (AlleyInsider)

(Photo: Reuters)