Yahoo! Tries to Clean Up
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After firing 2,000 employees, 14% of its workforce last month, Yahoo! (NASDAQ: YHOO) is engaging in a serious company restructuring. The move comes less than two years after Yahoo! cut 700 jobs, about 5% of its workforce at the time, and less than a year after it shed 600 jobs, 4% of its workforce then. The ailing company has been facing decreased market share and brand recognition in the face of giant competition from Google (NASDAQ: GOOG) and Facebook, both of which have diversified faster and proven more flexible to the ever-changing tech world. As new CEO Scott Thompson said in a memo to employees, “It’s time for Yahoo! to move forward, and fast.” If the company doesn’t step up to the challenges it faces, including defining itself in a world where tech branding can make or break a business, it could perish.
Scott Thompson unveiled the new structure of the company, which includes hiring new executives that will head three newly defined divisions: user interface, advertisers and technology. Creating a structure like this will help Yahoo! create and maintain new business by transforming the way in which individuals within the company interact with and report to one another in hopes that the new communication and organizational changes will lead to future growth opportunities. The overall trend for the company seems to be focusing on a switch from media search to commerce and content, generating new streams of revenue from advertising and covering pivotal events such as the London Olympic Games over the summer and the US presidential election in November.
Despite being a huge brand name in the tech sector and having the reputation as a web pioneer and provider, Google has been depleting Yahoo!’s market share for several years. Google’s search engine is the largest in the world, far surpassing that of Yahoo!, and Google’s Gmail has 1 billion users as opposed to Yahoo! Mail’s approximately 275 million subscribers. Google has worked at diversifying faster and more successfully than Yahoo!, not only in search engine and email capacity, but as a one-stop shop for news, stock updates, images and more. While Yahoo! does offer comparable services, Google has been far more successful at offering services easily integrated into one platform, making users’ experiences seamless and intuitive. In addition, as the owner of the world’s second-largest search engine, YouTube, Google has a monopoly on the best search algorithms and analytics.
Social networking site Facebook has also depleted some of Yahoo!’s market share, and, more, has possibly infringed several of Yahoo!’s patents. Yahoo! filed a patent infringement suit against Facebook in March, claiming Facebook used 10 of Yahoo!’s patents. It expanded its claim in early May, adding three more patents to the list. Facebook’s counter-suit claims that Yahoo! has infringed on some of Facebook’s patents as well.
Last year Yahoo! netted $4.98 billion in revenue compared to Facebook’s $3.71 billion, which, it must be pointed out, Facebook attained with just 3,000 employees. Yahoo! could take a page out of Facebook’s operations manual when it comes to lean and efficient business practices. However, Yahoo! reported a cash flow of $431 million in the fourth quarter of 2011, a 7% increase over the $403 million of 2010. $327 million of the $431 million is available cash, a 111% increase from the $155 million of 2010. Yahoo! is, however, in quite a bit of debt, about $132.55 million as of December 31, 2011. Clearly, any restructuring effort would need to make Yahoo! leaner, but the growth potential is already there.
Yahoo!’s restructuring is said to save $375 million after $145 million of payouts for employee severance. This is welcome news for a company that has been hemorrhaging money for years. Q4 earnings for 2011 were approximately $1.2 million, a 3% decrease from Q4 of 2010. One share is currently about $15, much higher than its 52-week low of $11.09. Yahoo!, while struggling is doing much better than its competitor America Online (NYSE: AOL). AOL has not been able to diversify its services in the past several years and has thus seen a mass exodus as users sign up for more user-friendly email and internet browser options. However, the ailing company is currently flush with cash after selling its patents to Microsoft for over $1.1 billion. There is speculation that AOL will use this money to fund exploration of new ways to diversify services. Other competitors, including Research in Motion (NASDAQ: BBRY) and eBay are struggling equally as the companies attempt to rival Google for market share; Research in Motion, the creator of Blackberry, is seeing their market share slowly scraped away by Google’s Android network, which has more apps and is more user-friendly than Blackberry. Android’s network grew from 43% market share in the third quarter of 2011 to 46.3 in the fourth quarter, as compared to Blackberry’s shrinking market share of 18 to 14%.
Although the situation looks grim for Yahoo!, all is not lost. First, Yahoo! was one of the first big names of Internet innovation, and that recognition and awareness is not going to go away anytime soon, especially as other first-generation web wunderkinds, such as AOL, continue to disappear further and further into the abyss. Although Google and Facebook have pressured Yahoo! from all sides, the company has still managed to eek out a position for itself as home to 11 number one properties and ranks in the top three in twenty global categories. It has also continued to modernize its technology platforms, built a leading data valuation platform and launched its 2012 US presidential election programming, beginning with an exclusive ABC News Newsmaker function with Republican candidates. Despite its poor performance in the past few years, Yahoo! still has the innovation and the talent it did at the beginning of the Internet bubble, and it will make it through the tough times.
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