There are credible rumors that Yahoo! Inc. (NASDAQ:YHOO) in the aftermath of the latest quarterly results is mulling a sale. The list of potential buyers will surely fuel many a Facebook rumors. Other rumors suggest Microsoft Corporation and Alphabet Inc (a.k.a. Google) have expressed interest. But the likeliest buyer may come from outside of Silicon Valley. Verizon Communications Inc. (NYSE:VZ) appears to be the frontrunner quest to acquire Yahoo. Yahoo stock is trading at its yearly low and the timing would be auspicious.
A sale would please owners of Yahoo stock by lifting the uncertainty over its business model. It would also finally help to remove Yahoo’s CEO, Marissa Mayer, from her post. Certainly, hedge fund investor Starboard Value would find some rest. In January, Starboard has threatened to shake up the board unless it made major changes, starting by dismissing Mayer.
Nobody signed anything…yet. Yet Verizon’s CEO, Lowell McAdam, sent a clear message to Yahoo’s Marissa Mayer on CNBC. He confirmed Verizon’s interest in Yahoo. Verizon has already acquired AOL for $4.4 billion and a possible Yahoo acquisition would make perfect sense in this light. It also agrees with Verizon’s “three levels” strategy.
By acquiring Yahoo, Verizon, a communications operator, can improve connectivity. It will also gain access to more platforms to bring traffic to its networks. Additionally, Yahoo offers content for Verizon’s existing ecosystem. (In media speak, “ecosystem” implies the combination of digital technologies from online news to blogs, portals, and video platforms.)
Verizon has not gone the full distance yet. McAdam seemed to be careful to ensure the market understands his interest as an intention, rather than lust. (Source: “Verizon Confirms Yahoo (YHOO) Bid Rumors,” Wall Street Pit, February 7, 2016.)
McAdam wants the right price, so he may be willing to let Yahoo stock drop some more.
Yahoo is not completely finished; it still has a strong reputation and a $33.0-billion market cap. However, analysts believe it’s worth some $3.0–$5.0 billion or even $8.0 billion. (Source: “Here’s how much Yahoo is really worth,” Business Insider, December 10, 2015.) These are all less than the Alibaba stake—and that’s why the time is right now for the next big step in its evolution.
What is certain though is that Yahoo cannot afford another quarter like the one announced last week. This has generated massive layoffs and the closure of some overseas offices. Yahoo’s board of directors rejected Mayer’s idea to sell some assets and start over with a new leaner company.
Yahoo has not lost revenue: it’s just stopped growing.
Mayer took over as CEO of Yahoo, an Internet services company founded in 1994 by David Filo and Jerry Yang, in 2012. Since then, YHOO stock’s revenue has fallen, albeit slightly. However, Yahoo has failed to gain any traffic, while the search engine leader, Google, has continued to grow. For Yahoo, it is a case of stopping while the company is still successful.
Last quarter, Yahoo’s revenue increased eight percent to $ 1.2 billion, but its profit slumped 99% to $76.0 million.
Yet, Yahoo still has value. The company would offer Verizon a web portal, a news site (Yahoo! News), and its e-mail service (Yahoo! Mail). It still has a strong userbase. In the United States, Yahoo is third place behind Google and Facebook but worldwide, Yahoo Mail can still count on more than 270 million users. (Source: “By the numbers: 45 Amazing yahoo Statistics,” Expanded Ramblings, November 7, 2015.)
Yahoo has lost users to Facebook, which gains popularity in emerging markets thanks to such apps as WhatsApp, Instagram, or Snapchat. These are popular with the younger generations. Since Marissa Mayer became Yahoo’s CEO, three years ago, nothing much has changed. As a brand, Yahoo was always popular.
Yahoo stock has had to contend with Yahoo’s resistance to spin off its stake in Chinese Internet firm Alibaba. Starboard, on the other hand, wants Yahoo to sell Alibaba, the firm’s biggest asset. The Yahoo board said it prefers a potential spinoff of its core Internet business—a transaction that could take another year. Verizon would please everyone in a single move. (Source: “Yahoo investor Starboard threatens board fight,” USA Today, January 6, 2016.)
Meanwhile, the millions of Yahoo! Mail users would be reluctant to change move away from the service, so that aspect offers a strong market point. Yahoo has reached the end of an era and a year from now, it will look much different than it does now.