Yahoo's 'seemingly permanent decline': is this the end for the once-mighty firm?

MarissaMayerarrivedtomuchfanfare.Threeyearslaterthecompanyremainsstuck,andsomecriticsarelayingtheblameatherfeet.Photograph:EthanMiller/GettyImages

IsYahooapproachingitsfinalyodel?Thetechcompanyisreportedlyintalkstospinoffitscorebusiness,aswellaswhethertofinallydivestitsremainingstakeinChinesee-commercecompanyAlibaba,thelatterfabulouslylucrative,theformer…well,notsomuch.

Thelion’sshareoftheblameforwhatadindustryanalystBrianWiesercalledastateof“seeminglypermanentdecline”inanotetoinvestorsthisweekisfallingonitsoncecelebratedCEO,MarissaMayer.

MayerarrivedwithmuchfanfarefromGooglewithplanstorestarttheailingtechcompany.Google’s20themployeeandaself-described“geek”,Mayerpromiseda“renewedfocusonproductinnovationtodriveuserexperienceandadvertisingrevenue”.ButcriticschargeMayerhasfailedtopickadirectioninthethreeyearssinceherelevation.

Sharesarehoveringaround$35thisweekafteraspikeonnewsofthepotentialsaleofYahoo’sassets,morethandoublethepricewhenshestarted.Butallthatvalueistiedupinassetsnowpotentiallyupforsale,andYahoo’sstillhugeoriginalcorebusinessremainsdeeplytroubled.

“Unfortunately,Ithinkthemarketonlyrespondstobiggame-shiftingchanges,”saidoneexecutiveataleadingonlinevideofirm.“AOLhasdoneagoodjobofjustcallingitwhatitis:‘We’reanadtechcompany,andwe’regoingtogolowbrow.’[Yahoo]haven’tmadethereallyharddecisions.”

Yahoodeclinedtocommentforthisstory.

Mayerrosetoleadershiponawaveofapprobationin2012whenshewasnamedCEO–amovethatsurprisedanalysts,whohadexpectedinterimCEORossLevinsohntobeformalizedintherole.ThemovegotactivistinvestorDanielLoeb,whohadenthusiasticallybackedMayer(andcampaignedfortheexitofthecompany’slastCEO,thetough-talkingCarolBartz)foraseatontheboard.

Some17monthslater,itsstockat$33ashare–upfromabout$13.50whenLoeb’sfundThirdPointhadbegunbuyingthem– YahoosawThirdPointdumpitsstake,earningLoebandhisinvestorsabout$1bn.InvestorandreporterWilliamCohanwroteinBloombergatthetimethat“saber-rattlingbycertainactivisthedge-fundmanagersisdesignedtobenefitthem,notthecompaniestheytargetortheircustomers”.

ThestockcontinuedtoriseuntilAlibaba,whichYahoohadpart-ownedforadecade,wentpublic.Yahootookanenormouspayday(andashareboosttomatch)butthemoveexposedYahoo’sfinancialpositionwhenitbecameclearafterafewweeksthatinvestorspreferredtobuydirectlyintoAlibabathanbyproxythroughtheirYahooshares–whichtheybegantosellenmasse.

ForYahoo,2015hasbeenaroughyear:ithasreliablyunderperformedonshareholderearnings,andreportedoperationallossesinitsmostrecentquarter.Putplainly,Yahooistryingtobuyrevenuebymakingbetsonacquisitionsandpriceyinitiativesineverydirection,andthey’renotpayingoff.

Considerasmallone:Yahoo’spurchaseofNBCsitcomCommunity,aprojectthatgestatedduringthebriefperiodwhenYahoo,AOLandotherprimarilydigitalbusinesseswerecompetingtoseewhocouldproducevideoseriesonaparwithNetflix.

Yahoobraggedthatitwouldnotcutthebudgetfromthecriticallybeloved,low-ratedsitcom,andtheshow’ssixthseasonpremieredinMarchessentiallyonlythroughdesktopbrowsers;therewasnowaytodownloadepisodesontomobiledevices,nowaytostreamontoaliving-roomTVset(unlessyouownedanXbox)and,ninemonthsandcountinglater,stillnoplansannouncedtoreleasetheshowintheUSonanyotherformofmedia(UKfanscanbuyaDVD).

Theresult:Yahootooka$42mwritedownonitsthreevideoprojects(Communitybeingthelargest)despitesomuchintegratedadvertisingthatCommunityshowrunnerDanHarmonjokedthat“theentiresixthseasontakesplaceinaHonda”.

Thentherewerethebiggeracquisitions:

$1.1bnforTumblr,whichbythetimethedealclosedhadascant$16.6mincashandsecurities.DavidKarp,thephoto-friendlybloggingservice’sfounder,receivedadirectpayoutofmorethanfivetimesthecompany’sstatedassetsindependentofbothhiscomingsalaryatYahooandhisstakeinthecompany,estimatedat$250m.

Afive-yearagreementinDecember2014tobecomethedefaultsearchengineonMozillaFirefoxafterGoogledeclinedtorenewitsoption;usershareofFirefoxhasshrunksteadilysinceFebruary.

The2014purchaseofvideoadvertisingnetworkBrightrollfor$640m;thatcompanyhadabout$310mincashandamortizableassetssuchascontractswithitscustomers.

NowMayerappearstohaveproblemsofherownwithactivistinvestors.StarboardValue,a$3bnactivisthedgefundthathashelpedtodrivedealsassizableasthisyear’s$6.3bnpurchaseofOfficeDepotbyStaples,sentascathinglettertoMayerandMaynardJWebb,Yahooboardchair,inNovember.

“Despiteournumerousconversationsandmeetings,andnotwithstandingyourwillingnesstoprovideusanaudience,youhavebeenreluctanttorespondoradapttotherealitiesofthecurrentenvironment,”wrotemanagingmemberJeffreyCSmith,sayingthatspinningofftheAlibabastakewouldhurtinvestors.

“Irrespectiveoftheimpendingtax-freespin-off,”wroteSmith,“itisclearthemarkethasadimviewofthecompany’scurrentstrategy.”