Mayer under fire
Yahoo's CEO Marissa Mayer, who joined the company in July 2012 from Google, has seen the company's share price rise under her watch from almost USD 16 to a peak of USD 51.75 in November 2014, only to fall back to around USD 29 more recently. Yahoo made some major acquisitions in this time, including Tumblr for USD 1.1 billion and Brightroll for a reported USD 640 million, but also shut down a number of services. In July 2014 the company unveiled a new strategy, focused on Search, Communication, Digital Magazines and Video, as well as Tumblr (blogs) and Flickr (photo sharing). The number of digital magazines (around 15) would be reduced and streamlined into four new portals.
Mayer is under fire from all sides since then. In January 2015, the activist shareholder Starboard Value argued against any big acquisitions, after proposing only in 2014 a merger with AOL (since then acquired by Verizon). In December 2015, hedge fund Spring Owl said the company should get rid of 75 percent of its staff and appoint new management. And now investor Valuentum wants the company to issue B shares backed by its Alibaba stake and use the proceeds to buy eBay.
Problems
Broadly speaking, Yahoo has two major problems: its growth has been stagnating for years and it needs to dispose of stakes in two large companies (35% in Yahoo Japan and 15% in Alibaba) without hitting shareholders with a big tax bill. The US tax authorities have refused to say whether a spin-off of the stakes could be conducted tax-free. This has led to the idea of instead selling the 'core business'. The latest idea from Valuentum is to create B shares for the stake in Alibaba. It's still unclear when or if the stakes will be sold.
The problem of stagnating growth is probably the bigger one. With almost 11,000 employees, the company is much too big, but cost savings don't create growth. Yahoo is a survivor of the first internet boom, but it's questionable whether 'portals' still have a role to play on the internet. Focusing on news, sport, finance and lifestyle appears a good idea, as these are verticals where Yahoo has its strongest audience. The company may need to try to expand the portals further. Valuentum's idea to use proceeds from a stock issue and existing cash to buy eBay is an interesting idea, as e-commerce is encompassing more and more services with 'buy buttons' (like pins on Pinterest and search results from Google).
Takeover?
Yahoo's current share price makes the company worth USD 27.5 billion, less than the value of its two major stakes in Asian companies. The question is who can maximise this value at Yahoo. It still has a large user base and significant ad revenues. A merger with eBay could be an opportunity, but an international telecom player interested in an online audience and advertising technology could also be candidate, following the example of Verizon/AOL.
