Ask Not What Yahoo! Can Do For You…
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
From everything I’ve read Marissa Mayer, new CEO of struggling advertising company Yahoo!(NASDAQ: YHOO), must love a challenge, money or both. Having taken over the company after Scott Thompson was ousted over issues with his resume and, more frankly, his lack of understanding his business, Mayer is walking into an undercapitalized, fading company whose board has been more interested in supporting its uninspiring stock price than investing in the business they are supposed to be running.
Getting control of that situation is going to be Mayer’s first major task. After finally selling off their 40% stake in Alibaba to unlock some of the company’s value the board immediately turned around and paid shareholders with a stock buyback that does little to nothing for their long-term viability. Then they turn around and hire Mayer, give her a big salary (not that there’s anything wrong with that) and a multiple year commitment to turn the company around.
It’s not like they got a great deal on the Alibaba stake, it was pretty much exactly what the market was pricing for the stock, so it’s not like the buyback will be accretive. Instead it smacks of short-sighted insiders feathering their own nest while blowing smoke up the investor’s backsides.
That money could have been better spent hiring or retaining the best staff of engineers and product developers to turn the company around quickly, stemming the flow of talent to Facebook (NASDAQ: FB) and Mayer’s former employer Google. The Facebook lawsuit that was the hallmark of Thompson’s short reign ended with a cross-licensing settlement that neither company is talking about further.
Yahoo’s most recent earnings were mildly encouraging, with revenue net ad commissions rising 1% year over year and net margins coming in above guidance. But it is their relationship with Microsoft (NASDAQ: MSFT) that is providing part of their revenues through their partnership using Bing as their search engine. That support revenue has another 9 months before it runs out, at which point Yahoo! has options.
Their problem has been the cannibalization of their search market share by Bing itself on Microsoft’s access points. Together they are not pulling market share from Google and that has not changed and won’t until Mayer can get their understaffed product engineering departments to produce compelling tools to lure users back within Yahoo’s universe.
Where the company has value is in their Sports and Finance divisions which still command significant traffic. This is why the board’s focus on stock price, and Mayer’s subsequent removal of it from the company’s internal network software, is so short-sighted. The way we interact with the web has changed. Instead of opening up your browser and letting your home page take you around the world, the world now comes to you from those you know and love. That’s the crucial difference between Facebook and Yahoo/MSN/AOL etc.
For many of us Twitter serves as our news aggregator. Do people still seriously use RSS readers to stay informed?
On Facebook you and your friends drive the content and while a great deal of that content is febrile it still matters. On Yahoo the content drives you and until Mayer remakes Yahoo into a more user-driven rather than advertiser-driven experience the company will slowly sink into irrelevance. The early signs are there that she is doing just that by getting the few engineers left that matter to begin building tools for the user and letting the advertising take care of itself.
I would argue that Yahoo needs to remake itself to target people are there to get things done, not waste time. Facebook is not the model. LinkedIn is: less user time generating more revenue. The speculation out there is that Mayer will make an acquisition like Pinterest. But how would something as clean and, frankly, beautiful like Pinterest jibe with something as frankly ugly, cluttered and obnoxious as a typical page served by Yahoo now?
Mayer is famous for the believing in simplicity of design, bringing that sensibility to the segments of Yahoo’s business that are working is a necessary first step.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Microsoft. Motley Fool newsletter services recommend Facebook 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.