Marissa Mayer's start at Yahoo was so promising. There were the glowing profiles in Vogue and in the business pages to herald the arrival of Yahoo's savior -- and a woman with nerd credibility to boot. How things have changed.
As Yahoo's board meets in coming days, a potential sale of Yahoo's core business is being weighed along with other options, the Wall Street Journal reported Tuesday. If this is the last act for Yahoo as we know it, it's nearly time to close the book on this would-be savior. Mayer's legacy is complicated, but her tenure can still be considered a success, as long as she sells at the right price.
First the bad news. After more than three years at the helm, it’s fair to say the operating performance of Yahoo under Mayer has been poor. In 2011, the last year before Mayer become CEO, Yahoo posted revenue of $4.38 billion, excluding what it pays to companies that funnel Web visitors to Yahoo, and $800 million of operating income. Last year, Yahoo’s revenue excluding those Web-traffic costs was nearly the same, $4.4 billion. Operating income was just $143 million.
Profits have been eaten up largely by Mayer’s spending on growth initiatives that haven’t produced any growth. For example, she reportedly spent more than $100 million over a couple of years to produce Web videos like news programming with Katie Couric and picking up the broadcast TV castoff “Community.” Audience for the video content didn’t turn up, and Yahoo recently took a $42 million writedown for three of its Web-video programs, including "Community."
Mayer’s acquisitions have been a mess, too. It’s hard not to wonder what would have happened if Yahoo had spent $1 billion to buy Instagram instead of Tumblr. Worse, Yahoo is a company searching for a coherent business plan. On the last quarterly earnings call, Mayer essentially told investors to stay tuned for a new strategy.
Mayer hasn't solved Yahoo's existential problem: It still has hundreds of millions of people clocking into its websites every month yet struggles to squeeze money out of them at a time when Web portals like Yahoo are a digital ad junk heap. In fairness, it's not clear any other CEO could have solved this riddle.
Given all that, Mayer can still rescue her legacy.
One metric by which a CEO is measured is the company's share price. Yahoo's stock was trading below $16 a share when she was tapped as CEO. Shares closed trading Tuesday at $33.71, far outperforming the Nasdaq during the same period. Yes, the share gains -- which largely came in the first couple of years of her tenure -- had far less to do with Yahoo’s operating performance than with the rising value of the company’s stock ownership in Chinese e-commerce giant Alibaba and in Yahoo Japan. Still, CEOs get to take the credit or the blame.
And Mayer wasn’t simply a passive landlord of the valuable assets she inherited. She has been skilled at coaxing good deals from partners, giving stockholders the cash returns they badly wanted, and removing thorns in Yahoo’s side. Mayer got activist Dan Loeb to go away by throwing money at him for his shares. She smartly reworked an arrangement to glean some cash from selling shares in Alibaba's IPO but held onto the bulk of the valuable stock. She revised a Web-search outsourcing deal with Microsoft and added one with Google that likewise seem to have made Yahoo more valuable.
Mayer can tip the scales in her favor if -- and there are so, so many “ifs” here -- Yahoo manages a sale at a good price. As Gadfly colleague Tara Lachapelle wrote recently, the tech world is littered with people who should have sold while their companies were still worth something. Yahoo should get out while the getting is good.
Somewhere, we imagine, Tim Armstrong is watching all the Yahoo drama and smiling with relief. He, too, was a well-regarded Google executive who was hired with great fanfare to turn around a worn Web company but was possibly overwhelmed by the job. At AOL, Armstrong found it tough sledding. Huge Web traffic didn't matter in an age of computerized ad matching that finds willing eyeballs anywhere online. He made questionable acquisitions in search for growth. Armstrong was prodded by activist investor Starboard to merge or sell or do something to lift a sagging price. Sound familiar?
For Armstrong, a white knight came along in the form of Verizon, which found AOL's online video and advertising-technology assets an alluring strategic prize. For Mayer, too, a sale would salvage her legacy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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