Marissa Mayer is celebrating three years at the helm of Yahoo. So what does she have to show investors?
Enough not to be a complete failure, but not enough to pass with flying colors either, if you ask SunTrust analyst Robert Peck. To hark back to the schoolyard days and assign a letter grade, he'd give her a grade of "C."
Yahoo's stake in Alibaba has been responsible for much of the run-up on the stock price -- Shares of Yahoo have gained 147% since this time 2012. Yet, as the company prepares to spin off its shares of the Chinese e-commerce giant, it's not surprising that some investors are beginning to look at what will remain of Yahoo.
"We think it’s natural for investors to begin to gauge the successes and misses thus far indicating the challenges that remain for 2016 and beyond," writes Peck in a note to clients, adding that the company is at a "critical juncture."
The main components investors should judge Yahoo by have to do with its traction on mobile, video, native advertising and social products; the people that staff the company; and its revenue prospects, says Peck.
Here's his progress report card on these very categories:
Mobile, video, native advertising and social: B-
Yahoo's progress on mobile, video, native advertising and social -- the key initiatives Mayer is focusing on to drive growth, which she has nicknamed MaVeNS -- is mixed, says Peck.
The revenue these initiatives have been bringing in has certainly been climbing. In 2014, it accounted for 25% of total GAAP revenues (up from about 12% in 2013 and 7% in 2012). Mobile has been particularly successful in driving growth.
Still, traction seems to have "stagnated," says Peck. For instance, Yahoo's mobile app rankings have remained relatively unchanged, the video sites featured on the homepage still reach fewer than 10% of internet users, and Yahoo's social strategy revolves largely around flailing microblogging site Tumblr.
People: C
Yahoo has slimmed down the size of its workforce by 29% since Mayer took the top job, making performance-based layoffs and also winding down 60+ products and services. Meanwhile, it has bulked up growth areas like mobile and video and rehired many previous Yahoo employees.
Yet, changes at the top have made headlines. Investors can point to a number of high-profile hires, like tech industry vet Ken Goldman as chief financial officer and Amazon exec Lisa Utzschneider as SVP of sales for the Americas. They can also point to many who didn't last long -- like chief operating officer Henrique De Castro from Google and advertising exec Ned Brody from AOL.
This type of executive turnover is disruptive but still more is expected, says Peck.
Revenue and profitability: D
When Mayer set about fixing the ailing company three years ago, she was clear that results weren't going to be immediate. Still, how much longer is it going to be?
"We think at the three year mark it is fair for investors to gauge the progress around the revenue growth objective," writes Peck. "If progress is not made on stabilizing core financials, pressure will mount from investors...ultimately, the company needs to prove out that it can return to profitable growth."
Stripping out non-core items (like Alibaba) to give investors a proxy for the company's true health, Peck estimates adjusted core net revenue of $3.9 billion in 2015, which means it's declining at a rate of about 3% a year, down from $4.2 billion in 2012.
Shareholders have seen little reward for all the company's aggressive spending. Yahoo has invested nearly $6 billion under Mayer on product development, capital expenditures and acquisitions and private company investments. This represents almost half of Yahoo's reported net revenue during the same period, estimates Peck.
"At first glance, it appears that Ms. Mayer has almost tripled the stock price in her three year tenure," concludes Peck. "However, our analysis suggests the value of the core business has actually declined, by as much as 50% (or $1.5 billion), to the extent that the core business is now almost free."