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Yahoo--Another Disappearing Giant With Nowhere To Hide

This article is more than 9 years old.

This week Yahoo announced it is spinning off the last of its Alibaba holdings.  This is a big deal, because it might well signal the end of Yahoo.

Yahoo created internet advertising.

Yahoo was once the #1 home page for browsers across America.  But the company has floundered for years, riddled with CEO problems, a contentious Board of Directors and no strategy for dealing with Google, which overtook it in all markets.

To much fanfare the Board hired Marissa Mayer, a Google wunderkind we were told, in July 2012 to mount a serious turnaround. And during her leadership the company's stock value has tripled, from about $14.50/share to about $43.50.  You would think investors would be thrilled and the company would be on the right track.

Almost all of Yahoo's value has been Alibaba stock.

Only almost all that value creation was due to a stock investment made in 2005, when Jerry Yang invested $1B to buy 40% of Alibaba. And Alibaba in 2014 became the most valuable IPO in history.

Yahoo today is valued at about $46B. The remaining Alibaba shares being spun out of Yahoo are valued at between $40B and $44B.  Which means that after adjusting for the ownership in Yahoo Japan (valued at $2.3B) the core Yahoo ad and portal business is worth between $2B and $4.7B.  With just over 1B shares outstanding, that indicates the value of Yahoo's core business is between $2.00-$4.70/share - or about 1/6 to 1/3 the value when Ms. Mayer was made CEO.

A highest value of $4.7B for the operating business of Yahoo puts it on par with Groupon.  And worth far less than competitors Google ($347B) and Facebook ($212B).  Even upstart, and often maligned, social media companies Twitter ($24B) and LinkedIn ($27B) have valuations 5 times Yahoo's.

CEO Mayer's leadership has done nothing to improve company value.

Unfortunately, this latest CEO and her team haven't been any more effective at improving Yahoo's business than previous regimes.  Under CEO Mayer, Yahoo has used gains from Alibaba's valuation to invest about $2.1B in 49 outside companies - with $2B of that being acquisitions of technology companies Flurry ($200M), BrightRoll ($640M) and Tumblr ($1.1).  Under the most optimistic view of Yahoo, leadership spent 40% of the company's value in acquisitions that have made no difference to ad revenues or profits.

In fact, Yahoo's business revenues, and profits, have declined for 6 consecutive quarters.  Despite the CEO's mandate that employees could no longer work from home.  A kerfuffle that proved yet another management distraction, and apparently an effort to cut staff without it looking like a layoff.

Meanwhile there have been big efforts to boost people going to the Yahoo portal. Such as hiring broadcaster Katie Couric to beef up the news section, and former New York Times tech columnist David Pogue to deepen tech coverage and New York Times Magazine political writer Matt Bai to draw in more readers.  But these have done nothing to move the needle.  Consistently declining display advertising has left search ads a bigger, and more profitable, business.  And while Yahoo's CEO has been teasing ad agencies that she might begin another big brand campaign, including TV, to bring Yahoo more attention - and hopefully more advertisers - there is no evidence anyone cares as more and more dollars flow to "programmatic" ad buying where Google is king.  In the digital ad marketplace Google has 31% share, Facebook 7.75% share and Yahoo a meager 2.36% share.

Yahoo lost market relevancy, and this leadership team has not changed the trajectory.

Soon there will be little left of the once mighty Yahoo.  It has lost ad market relevancy.  Large investors are crying for a merger with AOL, whose inability to grow its portal, ad and media businesses has left its market cap at a mere $3.7B.  But combining two irrelevant companies, that have declining revenues, will probably yield the same outcome as happened by merging KMart and Sears.

The Yahoo growth stall remains intact.  Revenues will continue declining, along with profits, as the market continues shifting to powerful and growing competitors Google, Facebook and other social media companies.  Only now Yahoo's leaders won't have the Alibaba value mountain to hide behind.

I’m an expert in business growth and overcoming organizational obstacles to success. Invite me to speak at your next conference or management meeting on how to grow your organization.  Learn more at www.AdamHartung.com, or connect with me on LinkedIn, Facebook  and Twitter. Links:

1 March, 2013 Growth Stall forecast and investor warning

Yahoo's slip into irrelevancy 11/29/12

Why Mayer's hiring as CEO had almost no chance of creating turnaround

How former Yahoo CEO Carol Bartz blew it