Marissa Mayer will remain as CEO of Yahoo! Inc. (NASDAQ:YHOO). The better news for owners of YHOO stock is that the embattled CEO will announce a restructuring plan. Rumors suggest some 15% of Yahoo’s workforce will lose their jobs. The restructuring plan includes cost cuts and the closure of offices and business units. (Source: “Yahoo’s Marissa Mayer to Unveil Cost-Cutting Plan,” The Wall Street Journal, February 1, 2016.)
Many top investors want drastic measures. They would start with CEO Marissa Mayer’s replacement or even an outright sale of the company. Cutting 15% of the workforce, said Eric Jackson, from SpringOwl Asset Management and a major Yahoo management critic, amounts to 1,700 people. There are still too many left. (Source: “Yahoo expected to unveil layoffs, other cost cuts during earnings call,” SiliconBeat, February 1, 2016.)
When Mayer came to Yahoo in 2012, employees totaled 14,000. According to Jackson, the main problem is that Merissa Mayer will remain CEO. Despite the fact that investors have different ideas about what should be done, they all seem to agree that Mayer hasn’t done a good job so far, as Jackson notes. (Source: Ibid.)
Starboard Value, another major investor in Yahoo, believes that anything short of the core business’ sale “is not enough.” Analysts estimate that Yahoo will report revenue of $1.23 billion and an operating profit of $900 million for full-year 2015. This is the first time profits fall below the $1.0-billion mark for the first time in at least six years. (Source: Ibid.)
Nobody Addressing Key Strategy Issues
While activist investors have plenty of advice for Yahoo, regular owners of Yahoo stock worry about its future. Yahoo must address the bigger strategy question. Otherwise, Yahoo risks “a proxy fight that would impose changes to its board and management from outside.” (Source: “The Big (Big!) Question about Yahoo Is Its Future, Not Its Quarterly Results,” Fast Company, February 1, 2016.)
At the end of January, Yahoo said it would shut down its Mexico and Argentina offices. But these have fewer than 50 employees between them. Marissa Mayer’s vision involves a strategy she called “MaVeNs”: mobile, video, and native content by 2020 or 2025. (Source: Ibid.) Perhaps, the time to launch MaVeNs is now or there might not be a Yahoo in 2020.
So the consensus opinion tends toward a much bigger cut than 15% and for Marissa Mayer to be a part of it. Yet, this would only be a short-term solution for a quick bounce in Yahoo stock. It would not add any market share to Yahoo. Replacing Miss Mayer won’t fix Yahoo’s malaise. Yahoo simply has no avenues to evolve. Startups are leading the evolution. These tend to finish their orbits around Google or Facebook after their initial rounds of success. (Source: “Why Yahoo faded: The Internet changed, but it didn’t,” CNET, December 9, 2015.)
Now Yahoo’s biggest proposition is its 15% stake in Alibaba, its one foothold on the future. Thanks to capital gain taxation regulations, Yahoo has not sold its stake in the Chinese retail giant, so it can survive around that platform as it considers getting out of the Internet industry altogether.
Yahoo Has 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, revenue fell, although only slightly. But it 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 it’s still successful. Last quarter, Yahoo’s revenue increased eight percent to $1.2 billion, but its profit slumped 99% to $76.0 million.
This decision comes as Yahoo, which includes a web portal, a news site, Yahoo! News, and its Yahoo! Mail e-mail service still have a strong userbase. In the United States, Yahoo is third place, behind Google and Facebook. However, worldwide, Yahoo! Mail can still count on more than 270 million users. (Source: “By the Numbers: 45 Amazing Yahoo Statistics,” ExpandedRamblings.com, November 7, 2015.)
Yahoo has lost users to Facebook, which is gaining in popularity in emerging markets thanks to such businesses and 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. Nobody doubts that Yahoo is one of the Internet pioneers, but like so many great empires before, it has entered its period of decadence and decline. It is better to recognize this early and concede that it lacks the freshness of a Snapchat or Instagram, rather than allow the stock to lose even more value.
The big cuts at Yahoo suggest that the recovery has not arrived. In three years, Yahoo stock rose from $15.00 to $50.00, before dropping to the mid $30.00s of today, a far cry from its $100.00-per-share days of the late 90s and early 2000s.
Yahoo has valuable products. It has launched apps for news, sports, messaging, or weather. The problem is that none of these has captured the market lead. Yahoo has been especially weak in the mobile sector; it’s not even close to matching, let alone beating Facebook or Google.
Yahoo relies on older users. The young—and nowadays they’re introduced to technology very young—do not go to Yahoo. Perhaps if Yahoo had bought Twitter, Snapchat, or any of the other popular apps before they were discovered by the market, Yahoo could have survived in its original business. Now, the brand name may have a future left, but not as part of its current business model.
The Bottom Line on YHOO Stock
Yahoo is not completely finished; it still has a strong reputation and a $33.0-billion market cap. 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 valuations are all less than the Alibaba stake and that’s why the time is right now for the next big step in its evolution.
As to the potential buyers, some established or growing mobile operators, such as Verizon, may want to get into it. Media tycoons may also find some use for Yahoo pieces to expand their own brand. Meanwhile, the millions of Yahoo! Mail users would be reluctant to change 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.