- The Hammer Drops
The announcement on August 6, 2011 that Yahoo had fired CEO Carol Bartz produced a memory flash back to 2008, when the company soundly rejected a $33 per share / $45 billion buyout offer from Microsoft. Ms. Bartz was brought in as the new chief executive not long after in 2009. Ever since rejecting the buyout, the $33 per share has looked pretty good to Yahoo investors as the stock struggled, without success, to stay above $20 per share.
As I write this, the Yahoo share price has already shrugged off the price pop from the perceived good news of the CEO ouster and is trading at around $13.50 per share.
It is fair to say the Yahoo stock performance over the last couple years has been a disappointment to investors, and it appears the company board of directors shares those sentiments. After just 2 1/2 years on the job, Ms. Bartz was fired with a cell phone call. For a take on the other side of the story, read the results of the Fortune magazine interview of Carol Bartz right after her dismissal. The link is provided in References below. Beware, bad words are used.
How the Mighty Are Fallen
The sad part is that Yahoo defined search in the early days of the Internet. At the end of 1999, Yahoo stock was worth over $100 per share. Yet the company was not prepared for the changes the upstart Google would have on the online business world. I remember doing many searchs on Yahoo until trying the new Google service in the late 1990’s. Google was so good, I do not remember ever using Yahoo for search again. Yahoo lost out to Google on search and the Yahoo groups have been overtaken by Facebook. In fact, Yahoo now farms its search out to Microsoft.
Compare the recent results of Yahoo and Google. In the first half of 2011, Yahoo had net earnings of $460 million on sales of $1.45 billion. In the same period Google had profits of $3.3 billion on revenues of $17.6 billion. It is easy to see why the Yahoo board would like to see a higher level of revenues out of what is a premier online business. Under Ms. Bartz, revenue growth for the company has been non-existant, to put it kindly.
In recent years, Yahoo has been attempting to redefine itself as an online media company. The goals was to increase revenues by providing the content instead of promoting search to find content.
What Happens Next
Picking a new CEO gives Yahoo a chance to change the focus of the company management. The challenge is to find a replacement CEO who has a vision of where Yahoo can go and the leadership skills to get there. Yahoo has a strong online media and technology presence. Parts of the business like Yahoo Finance, Sports and the email system allow the company to attract over 600 million regular users. The problem is advertisers believe ad money is better spent with Google and Facebook, resulting in steadily declining advertising revenues for Yahoo.
Yahoo may be a company where the parts are worth significantly more than the current whole. In the online business press, comments have been made that the company’s Asian properties, including Yahoo Japan and the 40 percent ownership stake in Ali Baba, are worth near or more than the current market value of the whole company. This gives the possibility that one of two choices could happen at Yahoo to boost the company’s value:
The new CEO may be given a green light to sell off the Asian assets, bringing in a large amount of cash. A portion of the cash could be used to pay a one time, large dividend to shareholders, a la Microsoft, and the balance reinvested into the core Yahoo business to build it up further as a premier online media company, increasing the company’s attractiveness to advertisers.
Another possibility is an outside media company buys up all of Yahoo and splits up the company, spinning off non-core assets and using the Yahoo media system to bolster the buyer’s Internet presence. There seems to be widespread belief that the core businesses of Yahoo are worth significantly more than what the stock price shows that value to be. The business just needs someone; a new CEO or a completely new ownership structure to unlock that value.
Just up in today’s (8-9-11) news: An Irish betting company lists a current Yahoo executive, Ross Levinsohn, with the top odds to be named as the company’s new CEO. Mr. Levinsohn is currently exec VP of Americas at Yahoo. Naming an insider as replacement seems to suggest the company will not be moving in any new directions soon.