Since last January, the tech world has been reading the tea leaves on Yahoo, wondering aloud what will become of this aging behemoth. There was some surprising news this week that should put an end to speculation…at least the type we have generated over the past 11 months or so.
It all began in January of 2015
It was in January 2015 that Chief Executive Marissa Mayer announced a bold plan to spin off Alibaba and save her company. Since easing into power in 2012, she had crafted this plan carefully, hoping to save shareholders billions of dollars in tax costs.
The core of the plan rested in reducing Yahoo’s stake in the Chinese ecommerce business. In 2014, Alibaba went public with a huge, overwhelmingly powerful bang (to the tune of a $168 billion IPO). Yahoo made $6.3 billion then, by selling part of its stake at the IPO. Now, Mayer wanted to rid the company of even more shares.
Even after the Alibaba IPO, however, Yahoo still owned around a 15% stake in the company. Ms. Mayer’s money-saving plan to spin off the Alibaba investment into a new publicly traded company called SpinCo caused a nice bump in Yahoo’s shares at the time of the announcement. In fact, Yahoo shares soared.
The issue at hand: Yahoo’s core business
Stock prices may have soared, but that didn’t mask for long the fact that Yahoo’s core business was in trouble. If you have been following the saga, you may feel that “in trouble” is a gentle way to phrase it. The core business of Yahoo – News, Mail, Yahoo Finance, Yahoo Sports- is out there wandering in space without a mission, a direction, a purpose, or even a dream.
As a result, Yahoo.com is viewed as worthless in the face of competing internet giants like Google. Smarty-pants tech and finance bloggers love to put it out there that the core business is worth $0. Here’s how they arrive at this alarming figure:
Yahoo (valued at $33 billion) = Alibaba ($32 billion) + Yahoo Japan ($9.7 billion) + Core (-$8.7 billion)
Actually, if you do that math, it’s worse than zero. Analysts, however, put the core (original) Yahoo suite of products at around $7 billion.
So, what is Yahoo’s core business again?
For those of us old enough to remember, Yahoo was among the first in search, email, and news. They were around before Google.
Nevertheless, combined profit from search revenue, display revenue and other miscellaneous revenue has been a flat or declining prospect for years now. Their search engine just never took off. Experts blame it on the failure of Yahoo to get on board with the smartphone era.
As for the yahoo.com search engine, there were signs of renewed life shortly after Ms. Mayer took over. Just before she came on board, yahoo.com competed closely with upstart Bing for the number two search engine. Then in late 2012 it was further disgraced by losing out to YouTube.
Now it’s just sad: for 2014, Yahoo search accounted for only slightly above 10% of the US search traffic, according to the comScore Explicit Core Search Share Report. In the United Kingdom, 3.5% ! Number two Bing accounted for almost double, at 18.6%.
One area which had shown promise is currently being torn up in the courts: daily fantasy sports. While upstarts Fan Duel and Draft Kings reap in profits, Yahoo has merely made spastic, belated movements towards entering the mix, only to face tough legislation in New York state. So long, Yahoo Sports.
The fabulous year-long plan and its totally surprise ending
This week, as analysts watered at the mouth waiting for results of Yahoo’s board meeting. What would become of Alibaba? Would Yahoo save its core business? Would Mayer please the shareholders?
Hints had come last fall, when in September 2015 Yahoo learned that the IRS did not approve the spinoff plan. The whole plan was put at risk. When the entire point of a plan is to save money on taxes, it’s bad when the IRS doesn’t applaud your efforts.
But Chief Executive Mayer stiffened her resolve and said she would go forward with the plan anyway.
Now, more than two months later, Yahoo has announced they will not be moving forward with the plan to spin off Alibaba. Seems shareholders finally got tough with Ms. Mayer and said “no more”.
The risk of going forward with her plan and having the IRS hit the company with millions of dollars in taxes was just too great. The surprise ending? Rather than spinning Alibaba into the nether regions to save the core business, Yahoo will keep Alibaba and put its core business up for sale!
The Mayer strategy is reversed, and her reply is priceless
Over the next year, we will most likely see the Yahoo we have all come to know be bought out by the likes of Verizon or some such communications conglomerate. It’s the final blow to a four-year run for Marissa Mayers, who considered the Alibaba spinoff to be the gem in her crown plan for resurrecting the company.
Her reply, when her grand plan was rejected at the board meeting? It must have been something like “See you in 16 weeks, my water just broke.”.
Less than 24 hours after seeing the pinnacle of her work of the last 4 years demolished before her eyes, Marissa Mayer gave birth to twins. Now, she is settling nicely into 16 weeks of maternity leave, a plan she did in fact push through to reality.