Yahoo Mathematics - Negative $5 billion
At this moment the actual "Yahoo businesses" have a value of negative $5 billion. Unbelievable right? Negative $5 billion?
This is based on some tricky math–the value of their external assets (Alibaba + Yahoo Japan assets = ~$40 billion) but their market capitalization is only $35 billion. Activist shareholders believe $5 to 10 billion is "locked" inside this quagmire.
This is why some major shareholders are barking at the door; they want to separate the core "real" business units (search, apps, advertising systems, users, networks, mail, media properties, Katie Couric, etc.) from the stock holdings. That way they feel they can sell the core business for $5 to 10 billion, or at least try. And still own a $40 billion asset portfolio that requires zero investment. This logic says that the company should be worth $45 billion or more, right? Therefore the stock, which right now is at $37 per share, should be at $45 to $50 or even more.
That's the logic, but it has a few flaws:
Flaw #1. Revenues are Declining. Marissa Mayer was hired in 2012 to great fanfare, to primarily focus on business development, i.e. build the revenues back up. That hasn't happened. Instead, revenues and market share has declined for every quarter since she joined. However she spins it her business development program has failed, and now you have a distressed declining revenue line and market share in a 20 year old business on the web.
So you'd have to derate the value of those core businesses and the probability of their turnaround. Once a company starts losing market share, especially if the competitors are Google and Microsoft in search, it usually doesn't turn around.
Flaw #2. Marissa Mayer. Marissa has had an obstinate attitude from day 1 and is currently being fairly uncooperative to outside shareholders and the press. She continues to insist that she's got this covered, and is doing a fine job. She told Charlie Rose last month that she wants to still be the CEO of Yahoo a year from now(!).
Marissa has also churned through a dozen senior executives and spent over $100 million in salaries and severances for those who are no longer there. Most departures were not amicable. The damage that is caused by turnover in a company like this can fatal to its future, no matter who buys it.
Her fighting stance on so many functional duties of her job will make it more difficult to smoothly transition the company. This has been discussed since 2013.
Flaw #3. A Fractured Company. Like the San Andreas fault, there's a giant crack through Yahoo now, in their employees, their so called strategies and their culture.
By straddling two opposing strategies - media and technology, Yahoo under Mayer lost ground in both, and chased away the best from each side of the company.
On the tech side they used to have some of the best engineers in the valley, the best software tools. They developed great PHP and Java and Javascript frameworks. Nobody even mentions those now.
In the media arena, they started a shift in 2001 when Terry Semel took over, but never fully committed, and backtracked several times. Marissa decided to do both, admitting they weren't the best at either one but did both. Strange strategy.
So what is Verizon or whomever buying if they purchase Yahoo? Arianna Huffington said it would be "a new playground to play in." A $4 to 8 billion playground? Mayer was supposed to announce the list of bidders yesterday on the earnings conference call, but she did not mention it, and when asked directly offered a no comment.
It's probably going to get worse over the next few weeks as investors try to wrestle the company away from current management.
Business development, that's where this all started. Then it became CEO succession. Now it's a fire sale of assets of a once great company.