Is Yahoo As Despondent As We All Think?

Nowadays everybody seems to be claiming that Yahoo is a financial albatross. Yes, its CEO might be in hot water with its board and frankly with most of it's investors as well, and the stock has not been the hottest thing on the market, but does that mean that Yahoo is a lost cause?  

Let's look at it's financials. The company has $5.5 billion of net cash and that’s certainly no small change. Besides let’s not forget that Yahoo’s 15% stake in Alibaba is worth nearly $30 billion, it’s stake in Yahoo Japan is worth nearly $9 billion and the additional $1 billion or so in EBIDTA that it generates from its core businesses is worth $2 to $4 billion depending on how you do the math. Ben Schachter of Macquarie Capital puts the value of the core businesses at $3.7 bil, or 5x 2016 EBITDA and UBS analyst Eric Sheridan assigns it $4.85 bil, a combo of 1.5x 2017 sales, 6x EBITDA and 12x free cash flow. Financially speaking, that’s not a company with no value, keeping emotions, rhetoric, share price and consumer sentiment aside for the moment.

Agreed, CEO Mayer isn’t popular any more, reportedly in fact and many even want her out. Investors are disenchanted with her and the company I get that and the stock also clearly reflects the sentiment. But let’s be clear about one thing - booting her out isn’t going to be cheap. If they fire her, they have to give her a cool $26 million in just severance and a whopping $110 million if Yahoo gets sold while she is CEO, so in either scenario she personally walks out a big winner. I just don't get these CEO contracts any more. I know they are pre-negotiated prior to the hire, but all I can say is wow!

There are more opinions at Yahoo than actual doers. It’s like American Idol – everybody gets to play and take a shot at it. Armchair intellectuals abound. Somebody wants Yahoo to buy eBay (not a bad idea really to think of it!), some investors want it all stripped up and sold in parts, some want the Alibaba stake to be sold off. Really why? It’s worth $30 billion and the IRS will likely tax the company a cool $10 billion on the sale. Why exactly does Yahoo need to lose $10 billion to taxes for no apparent reason?

Now let’s take the idea of Yahoo potentially buying eBay. It's evident that despite generating $2 billion of cash flow, eBay has been trading low. Yahoo on the other hand does see millions of visitors coming to its sites each month that I am sure can help bolster ebay’s declining audience. But experts say that its not going to be an easy acquisition even if possible as the tax complications are way too many to consider. I will admit that after having done 12+ acquisitions in the past 4 years, I have never considered "tax complications" to to be a reason to not do a deal if strategically the acquisition made sense!

Now let’s get one thing straight. Yahoo is not a tech company so please stop calling it a struggling tech behemoth. No it is not like Facebook, Google or Amazon, that’s why it does not feature in the same conversations that the trio feature in. It’s not even like Microsoft. So who are Yahoo’s competitors? Well news organizations really and online video companies, so in some ways it’s a publisher, a media company of sorts with good tech maybe, but not a tech company by any stretch of the imagination. Believe me Yahoo is not “tech” and its identity crisis has always existed ever since the Internet has existed. But on paper Yahoo will never be called a “Media Company” because it will lose its “tech multiple” advantage and possibly cause an all out board room battle.

From my point of view, the thing Yahoo is known for and probably does decently enough is Finance, and I am perhaps not the only consumer saying this. Yahoo Finance does get top marks for its research and news acumen. However, there is definitely no room for any growth here even if Yahoo owned the entire share of the financial research and news pie. Its prowess in Finance is a “nice to have” but not a growth story.

Although some consumers will disagree with me, other Yahoo products such as Mail, Sports, Calendar etc are nothing to rave about either. I do not use them and most consumers that do have better alternatives out there that they have not explored yet.

My family (not I) runs dental practices so I have some second hand experience with looking at things from an SMB perspective as well, and not just as a digital media industry insider. I ask you what value Yahoo creates for you? Are there any Yahoo apps or products that you routinely use that you swear by? For me I used to love Yahoo News but ever since they hit me between the eyes with some really horrendous ads (I like Ads and am all in favor of them – I just do not want to see bad ones and too many of them on my screen) and a subsequently slow user experience, it didn’t take long for me to move on.

You know what bothers me the most about Yahoo? It’s lack of vision, and its that single thing that will be the center of it’s inevitable demise. I know many great people that work there and Yahoo has some seriously smart ones still on its payroll. It also has a lot of cash as I stated above in the blog. It’s just that the company has become so myopic it can’t seem to get out of it’s own way!

Search the mission statements of Facebook, Amazon & Google and you’ll find simple easy to understand one line answers that all make sense based on what we know and see about these three companies. Now try doing the same for Yahoo and it’s all over the place. No Yahoo, its not enough to say that your vision is that of “information discovery”. Do you mean to say that you are really a search platform or a browser or just another Google? Well we have a Google already and it’s a giant and it's not going away soon. Like I said before, if “information discovery” is the motto, then I’m afraid Yahoo is not only late to the game, it’s not even an “also ran product”.

In the end I am not sure Yahoo should be selling, maybe it should be buying companies instead and seeking to become a multi channel behemoth rather than a one trick pony. Bottom line, whether Mayer stays and helps sell or reorg the company ($110 mil) or gets fired ($26 mil), she ends up making a bank full of cash. Even if an eventual inevitable sale or reorg happens I feel that somehow shareholder value will be extracted and passed on to the consumers and self-interested people in some form.

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