It's interesting that the Alibaba holdings are more of a liability than an asset in this situation.
YHOO is essentially a proxy for BABA, nothing Yahoo does affects the stock price in any meaningful way, and the value of the core business is effectively negative, if you subtract the post-tax value of Alibaba, Yahoo Japan, and cash on hand. But the value of a declining business with billions in revenue each year must be positive.
So selling off Alibaba and Yahoo Japan is the best bet, except you have investors demanding that it be done tax-free, so you can't just sell them, even though the decline of the value of Alibaba during the time it takes to do this process might be larger than the taxes. If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future. But that might still get you sued by the shareholders, which is stupid.
A reverse spin-off, i.e. selling the core business, has some funny implications as well. Many employees are on work visas, which are tied to a specific employer at a specific address. If this changes, all of those visas become invalid. Obviously, selling the assets and shrinking the market cap, would make it much easier for someone to buy Yahoo.
Why the assumption that BABA keeps declining in value? Shareholders probably have more faith in BABA than Yahoo core. Would make sense to sell core yahoo and keep Yahoo Japan and BABA under the Yahoo ticker. Reason being the tax from selling the latter two affects your PV more if you believe they will keep growing.
If BABA keeps declining in value, you'll reach a point where in hindsight it'll be obvious that Yahoo should have just sold the holdings, taken the tax hit, and distributed the money to shareholders. And that's a crap situation to be in, because you'll have armchair pundits calling out the company for not doing it.
If BABA stays in value or goes up, then selling off the core is the best option, except it's hard, it has all sorts of complications, it takes a lot more time than someone just buying the entire company, which makes it harder to find buyers, and you might not get as good as price as you could if you sold the entire thing.
Either way, you are making a huge bet on the future value of BABA, and you're damned if you do and damned if you don't.
It won't stay at its peak, very normal for most companies after IPO. BABA will continue to do okay in China as the ecommerce market is huge. The challenge BABA faces is quality rather than quantity and I don't think Alibaba is addressing it well.
But I believe the real problem is Yahoo being a media/technology company, Yahoo must improve its core business in order to be sustainable in the long run. They can sell BABA now, walk away, and reorganize the entire company from scratch. I am not saying people are greedy, but when you really have the chance to start from scratch do it. But I don't think anyone has any idea where Yahoo should fit. Content? Search? Where does Yahoo stand? This is why the shareholders are not willing to sell anything because they themselves are clueless.
You know how I know I'll never be a CEO of a huge company like this? Because I read what you just wrote and thought, "this doesn't sound like something that 1) I could ever solve 2) it just doesn't sound remotely fun to try and figure all this stuff out"
Marissa Mayer doesn't know shit about this either, most CEOs probably don't.
There are probably 50 different consultants, lawyers, fund managers, industry experts, etc, etc, that are all feeding her options. Plus all the other investors and board members who are all shouting out ideas.
It's only fun in theory. What's not fun is when you have to answer to investors, which give no shits about you or your employees, and only dollars, or what they perceive will increase their returns. Often, this is aligned with what management wants to do and what the employees want to do, but in a situation like this, the incentives can be heavily misaligned.
I think like most people in leadership positions at big companies, they can coast along on the success of the big company but they think it's all them. See also nfl coaches. When I was at google, she was such an ass to people. Many were glad to see her leave. I wish more leaders had humility about their success. She's got her 300 million, she'll be okay, but I doubt she will get an improved character out of this.
Okay, here's $135,000 a year, some stock options we'll dilute to hell, a probable tax burden, and a team of demoralized developers. Produce working software for my startup or be fired. And maybe be fired anyways if other things don't work out.
"Raganwald! What do you take me for?"
We've established what you are. Now we are negotiating the price and terms.
> If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future.
You can't possibly predict that, and thus, a tax free spin off is the only sane option. Also, you can't just dump 15% of BABA stock and expect to get the current market share price. Its value would probably decline by 30-40%.
If they succeed and Alibaba buys back that 15% stake (even at a discount) they will have returned an additional $5-7bn to shareholders by structuring it like this.
> But the value of a declining business with billions in revenue each year must be positive.
Sure, it is - it's worth a few billion. Their current market cap is $27bn and own they 15% of Alibaba (worth ~$24bn pretax).
If Yahoo didn't have those assets, the market cap would fairly reflect the value of a slowly declining multi-billion-dollar business, and it would be perfectly positioned for a takeover by private equity, who would proceed to milk the company dry, delivering tremendous shareholder value for everyone...
But since the uncertainty around the stakes are so high, you get the above weird valuation of the core, which makes selling off the core very difficult. The market doesn't "know" what a fair price for it is.
I don't think that's the true core value - more a statement about the way that Yahoo's current business model (if you can call it that) has a big net negative value.
Currently Y! is literally less than the sum of its parts.
There are a lot of reasons for that, but the absence of a "Where is this company going to be five years from now?" plan has to be a big element.
Investors barely have confidence in the present, never mind the future - mostly because Mayer has completely failed to reassure them.
> Currently Y! is literally less than the sum of its parts.
Or, at least, its market cap is worth less than the market cap of things it owns times the share it owns of them, meaning that (assuming the consistent utility of market-cap-based-valuation) that it is either worth less than the sum of its parts, or that some of its other parts have negative net value. The latter offends lots of people's intuitions about what those parts should be worth, but those people don't seem to be putting their money where there mouth is and buying up the undervalued Yahoo! stock, so maybe either simplistic market cap to market cap based value analysis is wrong, or those other parts really do have negative value, or both.
Remove the fake ads from your home page.
Remove the misleading ads from your home page.
Sponsored
How To Pay Off Your Mortgage
Homeowners are surprised and furious. If you owe less than $625,000 on your home, you better read this.
Remove the ads from your already terrible email service.
Remove the gossip columns that you call news and burry them deep where no one can find it.
Stop trying to be good at everything, because right now you can't do one thing well.
Stop with the ads that take over the whole screen.
Stop copying and pasting or embedding content from other sites
Stop using these crazy layouts that change all the time. It's impossible to find what you are looking for and it takes forever to load.
Promote content that matters.
Assume your audience is intelligent
Be creative
Be innovative
How do they generate revenue from webmail now? Millions rely on the yahoo webmail interface, and every request that server fields subtracts from the company's bottom line.
I would love to use Yahoo! as a "homepage" and get my news from there, if not only to show support for this company because the Yahoo! brand holds a place in my heart.
... But the duplicitous insertion of "sponsored" content that is intended to look like news among the legitimate news is too much for me to handle. Trying to consume news requires enough focus, nevermind having to scan each news story on their homepage to determine if it's a form of actual journalism or someone trying to sell me something.
A major problem with Yahoo! is the lack of compelling reason to even visit their properties. Everything is half-baked.
Yahoo's finance page is very good, better than anyone else's. With one click URL I can get quotes on all the stocks I'm interested in, with a thumbnail graph, and links to charts, news, etc.
Not just that, but Yahoo Finance's data download capabilities were a godsend for students like me in the late 2000s. No sign-up bullshit, they just let casual web users download enormous stock price data sets in CSV format. Very useful for my finance classes or econometrics term papers. I was fortunate to have access to a Bloomberg terminal at my school, but Yahoo Finance's efficient combination of displaying key metrics, historical prices and company-related newsires all on one site, navigable from my bedroom, was immeasurably valuable as well.
1. Google's is cookie based, meaning I can have only one portfolio.
2. Google doesn't have the thumbnail chart of the day's performance.
3. Google doesn't have the useful links.
Yahoo's is URL based, for example, here's a MSFT/AMZN/GOOG portfolio:
I'd imagine most of yahoo's users are not as tech-savvy to know how to disable ads, and since so many people use it it's probably full of these "common-denominator" stuff that we're not used to
Drucker had this idea of a "Business X Ray". Yahoo needs to apply that concept to the business: the most profitable 20% lines of business today and tomorrow need to survive: the other need to be axed; the money flowing into those 80% can be now redirected towards the profitable few.
What Yahoo has is breadth of platform: leveraging that can be done, but it will involve pay-to-play for consumers of the platform, something that is always taken badly by the freeloaders.
It's time for some hard decisions that won't sit well with ICs.
Ah, the classic 80/20 rule. 80% of the revenue comes from just 20% of your products. So your tempted to kill the 80% and become much more efficient. But the problem is that you can now apply the same rule to the remaining business. Do you keep reapplying until you only have a single product left?
"We admit we have no vision for this company, or its purpose, outside of maximizing shareholder value. Literally, we have no reason to exist other than preserving capital."
This reads like a classic sale script. Cut costs(hence the 15% cuts), focus on generating revenue (comments about focusing on core areas), then sell the business. Should be interesting
It's strange to me that this article with such brevity is on the front page, yet the NYTimes article about the difficulties of individuals to survive in retirement age got bumped?
but, if you take out the part that is completely irrelevant about how they reported something that did not happen about yahoo selling itself, then it is probably less than 140.
The article is about strategic decisions Yahoo! faces as a business. And you're using a five year old anti-LGBT bullying video as a sarcastic joke? That's double insulting.
YHOO is essentially a proxy for BABA, nothing Yahoo does affects the stock price in any meaningful way, and the value of the core business is effectively negative, if you subtract the post-tax value of Alibaba, Yahoo Japan, and cash on hand. But the value of a declining business with billions in revenue each year must be positive.
So selling off Alibaba and Yahoo Japan is the best bet, except you have investors demanding that it be done tax-free, so you can't just sell them, even though the decline of the value of Alibaba during the time it takes to do this process might be larger than the taxes. If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future. But that might still get you sued by the shareholders, which is stupid.
A reverse spin-off, i.e. selling the core business, has some funny implications as well. Many employees are on work visas, which are tied to a specific employer at a specific address. If this changes, all of those visas become invalid. Obviously, selling the assets and shrinking the market cap, would make it much easier for someone to buy Yahoo.