Yahoo Takes on the World: $4 Billion War Chest and a New CEO
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
An increasing trend has been cast upon the venture capital space in the past few years – younger CEOs. Young start-ups are popping up across New York and Silicon Valley, and VCs are happy to fund their new technologies. It seems that this trend is now catching on with the corporate world.
Just over four weeks ago, Yahoo! (NASDAQ: YHOO) hired 37-year-old Marissa Mayer, a former Google (NASDAQ: GOOG) executive. Mayer is Yahoo’s third CEO since May 2012, and she walks into a terrible situation that has seen Yahoo’s share price decline steadily over the past five years.
Since coming to Yahoo, Mayer has been very clear about the focus of the company – search engine consumers. Mayer removed Yahoo’s stock ticker from “Backyard,” the company’s internal site, so that employees can focus on making better products for those using its search products. Also, Mayer wants Yahoo to focus on other areas besides search, such as mobile, social networks, and local technology (think Yelp!). The logic is that consumers (people like you and me) will use superior products, thereby increasing site and search traffic. Then Yahoo can improve its advertising platform and boost its ad revenues, which comprise most of the company’s current $5 billion in revenues.
Yahoo is in a bind now, as its search engine market share has dropped from 15.9% in May 2011 to 13.4% in June. This is also bad news for Microsoft (NASDAQ: MSFT), whose Bing search engine powers Yahoo’s search results. Though Yahoo controls the look and feel of the search engine, Microsoft has a tremendous amount to gain if Mayer were to succeed in revitalizing Yahoo. Microsoft’s Bing is seen as second-rate, far behind that of Google. Bing’s search results are also far less relevant than Google’s results.
In order to spice up the new Yahoo, Mayer is stealing a number of tactics, ranging from employees to her former practices at Google.
Most importantly, Mayer plans to steal and acquire new talent. Google and Facebook (NASDAQ: FB) beware. Mayer is reaching out to Silicon Valley executives and current and past Google employees to populate her 12,500-person company. Though Yahoo has had trouble keeping top talent in the past, the situation looks to be different now.
The company will also acquire talent. Earlier this year Facebook bought Instagram for $1 billion. Was Instagram worth a billion? Only to Facebook, who essentially bought its programmers and tamed Instagram as a competitive threat. Google has done this same approach, sometimes acquiring numerous companies in the span of only one week. Now factor in Yahoo, and we could see talent leaving Facebook and Google to jump to a new, growing Yahoo.
Also, Mayer plan to copy the best practices of her former employer. Here is a breakdown of the most relevant.
- Approve New Hires – Mayer will approve all new hires at Yahoo.
- Data Intensive – Yahoo will gather and analyze more data that shows how users interact with Yahoo’s products. Yahoo will use this information to make new, relevant products.
- Friday Meetings – Mayer will address all of Yahoo and will take questions on Fridays.
- Free Food – Yahoo’s cafeteria food is now free for all employees.
What’s more, it looks like Yahoo will keep the $4 billion that it planned to distribute to shareholders. Mayer will use this cash to fuel acquisitions, expansion, and product development. Mayer is approaching her new situation at Yahoo with incredible ambition and creativity, and her $4 billion war chest is the key that could make her new strategies pay off.
In all, Yahoo is a company in need of emergency care. The firm’s stock price traded in the high 30s in 2007, a far stretch compared to its current price around $15. For comparison’s sake, Google very briefly touched the mid-700s and now trades around $650.
If Yahoo is successful at using data to create new products, luring away top talent, and acquiring new products and talent with the $4 billion on its balance sheet, the company could see a major turn in the right direction. Both Yahoo and Microsoft would love to see a return to the company’s glory days, but that is still a long ways off. For now, let’s just see if the search engine can pull its market share back above 15%. If that happens, I may just end up becoming a believer in the turnaround – and a shareholder.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, and Microsoft. Motley Fool newsletter services recommend Facebook, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.