Yahoo! Inc. (NDAQ: YHOO) shareholders are beginning to show signs of frustration as the company’s shares continue to sink off their highs of $34 last year. The web portal’s management has communicated a reorganization strategy, but has yet to produce results showing that a tangible turnaround is under way. Shareholders are hoping that the web giant will report decent third quarter results and take more aggressive actions to turn the company around.

Cheap Yahoo shares have also reportedly caught the eye of private equity firms interested in purchasing the company. A market capitalization of just $29 billion trading at just 42 times earnings puts it substantially below its peers despite its market-leading position in search and e-mail. There are no formal discussions currently taking place, but private equity firms are reportedly aggressively reaching out since its stock began trading below $24 per share.

There are also some concerns inside Yahoo that a strategic buyer like AOL, AT&T, CBS, Microsoft, or even News Corp., who have all shown interest in the past, may want to make a move at these depressed levels. The interest exists because Yahoo has an execution problem, not a structural problem. There are a lot of smart investors and companies that think they better execute and take advantage of the company’s leading search and e-mail services.

There is word on the street the Yahoo is planning to implement more dramatic measures in order to speed up a turnaround. These measures reportedly include layoffs numbering in the hundreds of employees in order to refocus its efforts on a smaller number of key areas. Currently, Yahoo employs around 14,000 people and said it plans to invest in some areas, reduce emphasis in others, and eliminate some areas of the business that don’t support the company’s priorities.

In the end, as management continues to fail to implement a turnaround and the stock continues to decline, the likelihood of a serious offer for Yahoo increases. There is a lot of money sitting in the hands of private equity firms, who are confident that they could orchestrate a faster turnaround. Meanwhile, strategic suitors are always looking to expand their offerings and shares in Yahoo are clearly on sale. Combined, these factors make YHOO a stock worth watching!

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