This isn’t the way co-founders Jerry Yang and David Filo expected to see their pioneer Web media company end up, that much is certain. Yahoo appears—to borrow a baseball analogy—to be on the way to going, going, gone, and not in the home-run sense of the term.
When the venerable Internet pioneer’s board of directors decided Dec. 9 to reject a plan championed by CEO Marissa Mayer to spin off its $30 billion stake in Chinese e-commerce giant Alibaba Group Holding into a separate corporate entity and let Yahoo continue business as usual, it indicated that it has given up on Yahoo returning to viability as a major Web services and advertising media player.
Earlier this year, when the U.S. Internal Revenue Service refused to say yes or no in advance to Yahoo’s request for a tax break in the deal that theoretically could result in single-digit billions in corporate taxes, it caused great uncertainty among shareholders and the board of directors. That was enough to set the stage for what the company did at its board meeting last week.
Will Hardly Be the Same Yahoo if Investors Have Their Way
The final straw was the board’s decision—and the subsequent announcement Dec. 9—to retain the $30 billion part ownership of Alibaba, ditch the tax uncertainty and possibly sell off Yahoo’s core businesses instead. This would, of course, eviscerate the company because without its core Internet businesses (Yahoo news, sports, finance, mail, photo storage, blogs and others), Yahoo simply isn’t Yahoo anymore.
The Yahoo with high-visibility Katie Couric as managing editor of its news division, the Yahoo whose sportswriters double as commentators on regional Comcast sports television shows, and the Yahoo whose home page, blogs and email service have millions of users will cease to exist.
Instead, the Sunnyvale, Calif.-based company ostensibly is being forced by activist investors who don’t believe in the competitiveness of Yahoo anymore to sell off its main business and keep the corporate identity of Yahoo as a shell to manage the rest of its assets—which consist mostly of the large Alibaba stake.
There remains a lot of conflict at the board and shareholder levels, because Yahoo executives are still talking about a rebirth of sorts to analysts and journalists—although this may well be a tactic to try to fetch a higher price for the core business from possible buyers.
Chairman of Board: ‘We Are Tremendously Undervalued’
“We believe that we are tremendously undervalued, and we think the best path to unlocking that value is by separating the Alibaba assets from our operating businesses and also by turning around the performance in the operating businesses, which we are focused on doing,” board Chairman Maynard Webb said Dec. 9 on a conference call with analysts.
On the same call, Mayer said that separating the Alibaba investment from the rest of the company will provide more transparency into the value of the business. “I remained convinced that Yahoo is on a better path and the right one,” Mayer said, although a group of key investors are in strong disagreement.
The decision, following three days of board deliberations last week—which, by the way, included board member and Alibaba Chairman/founder Jack Ma—was a rejection of Mayer’s plan to spin off the Alibaba investment and its shares in Yahoo Japan into a new entity and leave the core businesses—which currently bring in $1 billion per quarter and are profitable—intact.
If the activist investors eventually get their way, Mayer no doubt will soon be looking seriously at her severance package—said to be in the neighborhood of $59 million—and who could blame her?
Rock Star at Google Has Had Three Years to Do Turnaround
Mayer joined Yahoo in July 2012 from Google, where she was a rock star product manager and developer (Google Earth, search and others). Her turnaround plan over the last three years has reconfigured the company’s focus. It has included layoffs, project shutdowns and other cost-cutting moves; at the same time, Yahoo has made investments in television, editorial personnel and video—mainly the acquisition of BrightRoll—and mobile advertising projects.
It’s way too late for the company to rebound from lost battles with competitors like Google and Facebook. Yahoo’s problems began when it lost the Web search battle to Google more than 15 years ago and never recovered from the blow, despite a partnership with Microsoft (on Mayer’s watch) to use Bing IP. Facebook and LinkedIn have become the type of social networks that Yahoo envisioned itself running at some point.
I am among the many analysts who believe Mayer simply arrived too late to construct a viable turnaround. The previous turnstile of CEOs in the preceding several years didn’t help the company. While she attempted to make the company’s Internet businesses richer in content in order to sell advertising, Yahoo’s main strength is in desktop Web ads—a sector that slowly has been diminishing as screen time on larger PCs is replaced by that on mobile devices.
ISPs Could Be Possible Buyers
Companies such as Verizon, AT&T and Comcast—all of whom are expanding their investments in Web and mobile services—are believed to be possible suitors, according to some reports.
Who really knows at this point what will happen? The holidays are here, and we probably won’t be hearing anything else from the company for a while.
This means that 2016 surely will be a make-or-break year for Yahoo, long one of the most recognizable and useful Web brands in the business.