SAN FRANCISCO — There is one certainty about Yahoo’s uncertain future: 2016 should mark a turning point, but not a return to its glory days in the 1990s.
An Internet icon that helped introduce the concept of an online destination (remember “portal”?), the Silicon Valley company founded at Stanford University in 1994 by then-graduate students Jerry Yang and David Filo later defined online content and was the “it” Internet company long before Google and Facebook.
Now it resembles a latter-day steel company, a one-time American success story that is an after-thought. Its 15% stake in e-commerce giant Alibaba (BABA), at roughly $30 billion, is nearly all of its market valuation of $31.7 billion. Its assets? Zilch.
“The problem is Yahoo has not had an original or unique idea in a long time, and the stock price desperately needs a few high potential projects that change the dynamics,” says Holger Mueller, principal analyst at Constellation Research.
The situation at Yahoo (YHOO) is tenuous and fluid. Its nine-member board of directors, which includes CEO Marissa Mayer, pulled an about-face and decided not to spin off Alibaba amid pressure from activist shareholder Starboard Value. Its core Web assets are likely to be sold. More than a dozen executives have departed over the past year.
Yahoo shares, meanwhile, are trading at $34.04, closer to the 52-week low ($27.20) than the high ($51.68). Shares have lost 33% this year.
Several potential hurdles confront Mayer & Co. in the near future: Fiscal fourth-quarter results are scheduled to be announced in late January and the entire board is up for re-election in the summer, which could lead to a proxy battle.
“There’s a feeling among some investors and observers that if Yahoo was going to turn around it would have done so by now,” says Greg Sterling, contributing editor at market researcher Search Engine Land. “It does seem now that there will be some sort of change in 2016 — either a sale of the company or a leadership change — although I don’t think a new CEO will fare any better.”
Yahoo declined to comment for this column.
The rise of mobile devices and social media accelerated what was already a slide into diminished relevance the past several years.
Underscoring the fall-from-grace narrative, a lavish Roaring Twenties-themed holiday party with spacious digs near the San Francisco Bay, flap dancers and a speakeasy motif, presented a perception to some that Mayer was tone deaf to the company’s precarious situation.
The cost of the celebration, which company critics pegged at $7 million, was actually $2 million, said the people, who are not authorized to speak publicly on the matter.
While others disparaged and dismissed Yahoo, some clung to the belief it would find a way to leverage its excellent content in sports, finance and tech to persevere. Its monthly audience of about 1 billion alone merited hope.
The chronicle of Silicon Valley includes some tech companies that have managed to come back when they were down for the count.
Apple was left for dead in the mid-1990s before embarking on a run of success rarely seen in the history of corporate America. Facebook faced uncertainty over its mobile strategy, then proceeded to hit it out of the park the past few years. Even gilded Google encountered an identity crisis when it turned 15 years old.
But Yahoo is trapped in a purgatory of middling ad revenue growth — especially when compared to Google and Facebook — and stilted market share for search. It seemingly is the third- and fourth-option for advertisers and consumers.
Yahoo is expected to be far behind its rivals in the $104.3 billion worldwide market for online display advertising in 2016 — 2% vs. 21% for Facebook and 12% for Google, according to eMarketer, which tracks ad spending on the Internet.
Yahoo’s slice of the estimated $72.1 billion worldwide mobile ad market this year is 1.5%, compared to Google’s 34% and Facebook’s 17%, eMarketer says.
“In contrast to her critics, I believe Marissa Mayer has done a relatively good job with the hand she was dealt,” analyst Sterling says. “She has Google on the one side and Facebook on the other limiting her growth potential and room to maneuver.”
With its options apparently dwindling and pressure on its management team intensifying, Yahoo must make hard choices — and fast — in 2016.
A former Yahoo executive compared Mayer’s situation to that of ex-Twitter CEO Dick Costolo – embattled executives with few internal advocates and a swath of lethal rivals such as Facebook and Google.
The melodrama is sure to ratchet up in early 2016, when Mayer has vowed to articulate a plan to “narrow our strategy and focus on newer products” that could result in thousands of layoffs. There is also the strong possibility of a private equity firm buying up pieces of Yahoo.
But time may be running out for Mayer, a successful former Google executive who inherited a far different situation at Yahoo when she was named CEO in July 2012, analyst Mueller says. “Can she keep the trust of the board (in 2016)?” he says.
“It’s a fine example where the Valley transplants a successful exec to another entity, but Yahoo’s business is so different than Google’s (that) very little that worked at Google works at Yahoo,” Mueller says.
Despite the contretemps, there is a solution to Yahoo’s problems. That is, get rid of search and concentrate on mail, messaging and content, according to a third person familiar with the company’s strategy who asked not to be named.
Which all leads to one inescapable question: How long will Mayer survive as CEO? Many are betting she fights on, despite the criticisms and self-inflicted wounds. Some speculate she may just look for an elegant exit.
Follow USA TODAY San Francisco Bureau Chief Jon Swartz @jswartz
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