Asset Sales Could Boost Yahoo Stock
Despite the rumors of demise, Yahoo! Inc. (NASDAQ:YHOO) has defied the analysts and the odds. Over the past month, Yahoo stock has gained almost 15%. The even more surprising aspect at Yahoo is the stubbornness of its embattled CEO Yahoo. Marissa Mayer has managed to absorb the shareholder activism of Starboard Value, which wants her out. She remains firm at her desk.
Ultimately, Mayer’s strategy is working because it keeps the Yahoo core or “ecosystem” attractive to both strategic partners and outright asset buyers. Yahoo is experiencing a spring cleanup rather than a fire sale.
Indeed, rather than admit defeat, Melissa Mayer has concocted a three-year plan for renewal. If there is one big concern is whether she will have the courage to implement it. Yet, there is no reason to doubt her, considering how determined she has been so far. Mayer took her executive post at Yahoo four years ago. Now, she is giving herself three years to complete what she hasn’t been able to do so far. (Source: “Yahoo! Inc. CEO On a Secret Mission,” Business Insider, March 4, 2016.)
Mayer still has a miracle-sized effort to achieve if she intends to keep Yahoo on track. Simply reducing the workforce further and selling assets including core activities—other than its stake in Alibaba—will not be enough to keep the company alive. Thus far, the cuts have worked.
Yahoo has launched a staff reduction scheme, targeting 15% of its workforce, while selling assets to generate about a billion dollars by selling non-strategic assets.
The assets on the chopping block have included Yahoo! Games, Yahoo! Astrology (France, UK, Spain, Germany, India), and Yahoo! Maktoob. LiveText video messaging is also on its last legs. The restructuring is intended to enable Yahoo (and Yahoo stock) to develop seven main products, which Mayer is not cutting. These include the search engine, Yahoo! Mail, Tumblr, and the four Yahoo portals, including news, sports, finance, and lifestyle. (Source: “Yahoo announces plans to kill off Games, Livetext, Boss, and more regional sites,” Venturebeat, March 11, 2016.)
Marissa Mayer also continues to ensure that the firm will be functioning when she’s finished with its turnaround plan over three years. Mayer may not be able to stave off the storms, but her determination has a certain charm, enough to persuade investors to remain optimistic if not outright bullish on Yahoo. Certainly, it is an exciting time for Yahoo stock.
The only certainty concerns the 15.5% stake in Alibaba, which alone is worth some $30.0 billion. CEO Marissa Mayer decided not to spin off Alibaba, citing fiscal risks. Instead, the CEO’s strategy has been to sell Yahoo’s core companies. These include the search engine, e-mail service (which was the most popular e-mail service in 2009), and the news section.
These assets are crucial for Yahoo stock, because they may have sparked a bidding war among some 40 companies, including Time Inc. and Verizon, the telecom giant, which already has AOL under its belt. (Source: Ibid.)
In short, Marissa Mayer is doing everything possible to retain her post. And her strategy has worked so far. This suggests that most Yahoo investors agree with her. They would rather Yahoo sell its core businesses rather than spinning off multibillion-dollar stakes like Alibaba Group.