Greed - there's no reason why Yahoo! cannot operate as a smaller but profitable business - it's never going to be the industry leader it once was but the fact it's still around after all these years is impressive in its own right - a new CEO needs to come onboard and give the company the respect it deserves by cutting a lot of staff, products and services and focus on a smaller set of services that drive a smaller profit.
Yahoo today is a private equity fund first and an operating business second. By that I mean, the vast majority of Yahoo's value derives from investments like Alibaba and Yahoo Japan. The core business is relatively small. You might have to do a deal like this in order to get the core business spun out cleanly from the rest.
Regarding the core business, we're in an era where markets are becoming more winner-take-all meaning scale is your network effect and there are huge gaps between 2nd or 3rd place and the rest. This is especially true in ad tech and ad supported businesses (Facebook, Google, and the rest). From this perspective, Yahoo core is probably hugely more valuable to Verizon or another massive company who can credibly challenge Facebook and Google, than it would be by itself.
In fact if you add all the numbers for the Alibaba and Yahoo Japan, it ads up to less than what it should be, i.e. on its own the core business has a negative value, which is kind of interesting.
No, Core Yahoo is a profitable multi-billion-dollar company in a slowly declining market.
The reason the market values Core Yahoo negative, is because it thinks the current management will destroy capital by spending it on useless acquisitions and costly R&D to become a growth company again.
But accepting that it is a stable company that's going to bring in billions in revenue for years, and just milking it dry is actually not a bad strategy. It's a very boring strategy though.
IPs are still visible. And when you can tie IPs to individual households, addresses, and credit card information there's a lot of information to be gained.
Investors don't think like that, and their opinion is what decides the future of the company. Shares are only worth something if you can sell them at a profit or if they pay a dividend.
A Yahoo with a declining profit margin and market share is worth less in terms of any likely future dividend. So the share price drops accordingly. Normally, this would make it more likely for an outsider to purchase the company as those that bought at the higher price would be willing to see either a small loss or a small profit (depending on when they bought) and close out their position. The purchaser could then sell the pieces or merge with another company or do something to get more revenue later on.
What complicates all this is the shares that Yahoo has in BABA and Yahoo Japan, which set a hard floor on the stock price (and lowers the potential upside for any acquisition, making it hard to find buyers for the whole company). However, they can't just sell out of those positions and pay off some existing investors and/or buy shares, as they would have to pay a hefty tax fee and probably tank the stock price as it tried to find a new floor.
One potential way out of this would be to find a way to kickstart the company growth so it would be valuable enough that investors would hang onto it. That hasn't worked. Another way is to try and just spin off the BABA shares into another company, give those to some investors so they can close out their positions with a profit, and the remaining investors can focus on the business. That got nixxed by the IRS.
So they're basically stuck doing the same chop shop deal that a "corporate raider" might pull, only while taking a huge PR hit and a hit to morale because they're supposed to be the "good guys". Not some "outsider" pulling a hostile takeover.
And why can't the new buyer do that? What makes it greedy to sell the business and let someone else hire that CEO? It's not like they're shutting it down and selling the assets individually.
They could do that, but the problem is that the stock price is too high to encourage someone to buy it wholesale because of the stakes in other companies, but the future earnings potential is keeping it too low to allow investors who currently have Yahoo stock to sell out of their positions without taking a huge loss.
I wonder if outcome would've been different if she didn't bring any new outsiders, but instead worked with the team that was already in place. Perhaps skip a level or two, to tap closer into lower level managers and give them more autonomy.
Yahoo has plenty of smart people itching to do the right thing.
Not really. Marissa came in and spent spent spent to try and make Yahoo! into Google, something it would never be.
She was not a destroyer who came in to trim down to the appropriate level, she was the creator expected to raise them to new heights with all kinds of new ventures and projects.
