Yahoo! Inc chief executive officer Marissa Mayer’s latest flip-flop may be her last.
Mayer long argued that with the right amount of adjustments — product improvements here, cost cuts or acquisitions there — she could put the company back on a path to growth. She unveiled the latest turnaround effort yesterday, saying she’ll cut about 15% of the Web portal’s staff, shutter some offices and units and exit product lines.
Yet by also saying she’ll consider putting the company’s core assets up for sale, Mayer signaled that even she may be out of options for turning around Yahoo on its own.
“We’re right at the beginning of what the board wants to do,” Mayer said. “It has yet to be seen exactly what types of interest will really transpire, but we’re open to any transactions. We’re open to any proposals that are well qualified.”
It was the latest in a flurry of strategy shifts over the past several months, all aimed at jump-starting growth while finding a way to dispose of valuable stakes in Asian Internet operations without incurring a heavy tax hit. As the company’s performance worsened and its stock tumbled, activist shareholders such as Starboard Value have said enough is enough, calling for leadership changes or an outright sale.
Several parties have expressed interest in a possible Yahoo transaction. Officials from telecommunications giant Verizon Communications have publicly said they’d consider a deal. Private-equity firms TPG and Bain Capital Partners are also weighing bids for Yahoo, according to people with knowledge of the matter.
Verizon chief executive officer Lowell McAdam and chief financial officer Fran Shammo, using similar language, both said in December that Verizon would look at a Yahoo deal “if it made sense.” Verizon acquired AOL for $4.4bn last year. Yahoo’s mail, finance, sports and video sites attract more than 1bn users and represent a stable of assets that would add to AOL’s roughly 170mn Web visitors. Such traffic, along with exclusive content, holds appeal for Verizon, which needs to lure and retain a new smartphone-addicted generation.
Despite Verizon’s interest, the two companies haven’t discussed a sale, according to a person with knowledge of the matter.
Shares of Yahoo slipped in extended trading. The stock fell 1.7% to $29.08 at Tuesday’s close in New York, bringing the decline for the year to 13%. In a separate filing, the company said Charles Schwab resigned as a director, reducing the board to seven members.
Mayer has been working to navigate Yahoo out of a slump since taking over as CEO in 2012. Late last year, Mayer abandoned a plan to spin off its valuable Asian assets to shareholders, and said she would instead consider a reverse spinoff of other businesses into a standalone company, heightening criticism of her strategy. The Web portal on Tuesday said it will continue to pursue that plan, while the board will “engage on qualified strategic proposals.”
As part of the new strategic plan, Yahoo aims to cut costs by more than $400mn by the end of the year, and is targeting revenue of $1.8bn in 2016 through its so-called Mavens businesses, which includes ads through mobile, video, native and social platforms.
Some of those cost cuts include consolidating digital magazines under core verticals, while shutting others down. The company will also exit older products, including Games and Smart TV, which haven’t met growth expectations.
“Cutting costs and focusing on its areas of revenue growth should make the operating business more attractive to a potential buyer,” said Paul Sweeney, an analyst at Bloomberg Intelligence.
For the fourth quarter, the company reported sales, excluding revenue shared with partner websites, of $1bn. That compares with analysts’ average estimates of $948.1mn, according to data compiled by Bloomberg. Excluding some costs, profit was 13 cents a share, compared with the analysts’ average projection of 12 cents.
The company took goodwill-impairment charges totaling $4.46bn in the period to account for a change in value of some of its units, including Tumblr. The blogging service failed to reach its goal of $100mn in revenue last year, and took a charge of $230mn, chief financial officer Ken Goldman said during a call with investors. Yahoo, which had 10,400 employees at the end of 2015, had already disclosed plans to close some offices, including sites in Mexico and Argentina.
Yahoo said it expects to return to modest and accelerating growth in 2017 and 2018. For the current period, sales excluding revenue passed on to partners is forecast to be $820mn to $860mn, according to a company slide presentation.
As for the reverse spin, Goldman said the process should take nine to 12 months. He expressed confidence that it could be completed by the end of this year.
Activist Starboard Value, which first raised concerns about Yahoo in 2014, says that’s too long for shareholders to wait — and has urged an overhaul of the company’s management and board, saying that “significant changes” are needed. The remarks, made last month, were the strongest indication that the investment firm is gearing up for a proxy battle aimed at unseating Yahoo directors. Starboard owned less than 1% of the company as of the third quarter.
Another activist, SpringOwl Asset Management, said the latest moves show Yahoo is listening to shareholders, but “we believe the strategic plan does not fully address the core issues which have destroyed shareholder value,” according to a statement. “We are committed to continuing to push for moves that will fundamentally turn the company around,” SpringOwl said.
As newer Internet search and content hubs such as Facebook and Google have lured advertisers, Yahoo failed to keep up, and sales have slipped since reaching a peak in 2008. In about three and a half years at the helm, Mayer has poured money into improving Yahoo’s products and landing media-content deals, while expanding services through acquisitions. Yet many of her efforts have stumbled — and even before the announcements Tuesday, Mayer had cut the workforce by more than 30% and closed down some offices in futile attempts to jump-start profit and sales growth. At about $27bn, the company’s market value is less than half what it was in 2005.
It’s been a tumultuous decade. Since 2006, the company has been under the leadership of seven permanent or interim CEOs, including one who was fired with a phone call and another who resigned after failing to correct errors in his credentials.
Yahoo has been the target of several activists in the past, including Daniel Loeb’s Third Point earlier this decade, and Carl Icahn in 2008 amid a failed buyout by Microsoft Corp.
Although Mayer and the board downplayed any drastic scenarios last year, people familiar with the matter said last month that Yahoo was considering an outright sale of its business.