Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Months ago, CEO Marissa Mayer promised details on how she would revive Yahoo after years of failed turnaround efforts. And now the company has finally landed on the soundest strategy: Put up the "for sale" sign. 

The company said on Tuesday that it was considering "strategic alternatives." People familiar with awkward corporate jargon will understand Yahoo's phone banks are now open to parties interested in buying the company.

But fittingly for a company that doesn't tend to travel in a single direction, Yahoo is also hedging its bets with a fix-it plan that calls for laying off roughly 15 percent of its workers, selling or dumping businesses to generate more than $1 billion in cash and somehow luring more users to Yahoo websites and apps. 

Investors' focus, understandably, is on a potential sale. It was inevitable that we would get here. It's just a shame that Yahoo waited this long. If the company had taken a serious look at its sale options a year ago, shareholders might not have seen $19 billion of their money go up in smoke.

It has been clear for some time that Yahoo was broken. A focus on mobile has generated few winning apps. Money splurged on Web video series and a second-tier video ad business now look like a waste. The company's once mighty technology for digital advertising is in a shambles. Operating costs are going up and net revenue has fallen in nine of the last 12 quarters, including a 15 percent dip in the three months ended in December. In the garbage dump of news on Tuesday, Yahoo tucked in a mention that its accountants decided the paper value of the company had declined by $4.5 billion in the last year.

Purple Drain
Since Marissa Mayer took over as CEO, Yahoo has morphed from tidy profits to mostly losses.
Source: Bloomberg
* Q4 2015 operating loss excludes an non-cash impairment charge. Including the accounting hit, the quarterly operating loss was $4.5 billion.

Who still has confidence in the latest chapter of perpetual turnaround? Sure, cost-cutting is a smart move for a company that isn’t growing, but it’s no silver bullet. Yahoo had already shed about 14 percent of its workforce from the end of 2014, and profits worsened. And it's not as though Mayer hasn't articulated a strategy in her three and a half years at the helm. She did. Repeatedly. Yahoo was an entertainment company. It was going to make smartphone apps that people couldn't live without. Yahoo would bet on technology for a new type of Web search. 

The new strategy at Yahoo looks a lot like the old one, just with deeper cuts in unpromising businesses. A new/old strategy plus more mass firings -- oops, I mean “remixes” -- are not going to change Yahoo's essential conundrum. 

Keep in mind that even a sale is far from a sure thing. Yahoo is incredibly complex given its relatively small size, with nearly all of the company's stock value tied up in investments in Chinese e-commerce giant Alibaba and a part-owned affiliate in Japan.

Yahoo hasn't been able to figure out a way to turn this paper investment windfall into shareholder value without taking a painful tax hit, and potential buyers of the company might not either. This is all familiar territory. Big companies and financial investors have tried and failed over the years to craft ways to buy all or parts of Yahoo. It feels like Yahoo has been for sale off and on since 2008.

It's not clear why Yahoo changed its mind since December, when executives said they were considering all options for the company but were throwing their weight behind a complex deal to spin off the operating parts of Yahoo and strip away the company's Alibaba shares, a reversal from its previous plan to spin off the Alibaba stake.

Maybe it was those noisy shareholders who asked whether Yahoo was improperly ignoring interest from potential suitors and threatened to overthrow the board. Maybe it was a stock price that has dipped 15 percent since the December announcement of the spinoff switcheroo, compounding a 35 percent share swoon in the last year. Maybe it was further signs that Google and Facebook have cemented their positions as kings of digital advertising, while Yahoo falls further behind.  

Divergent Fortunes
As Google and Facebook consolidate their hold on digital advertising, their stock prices have soared. Yahoo's share price has been going in the opposite direction as its ad business loses ground. Stock price changes over the last year:
Source: Bloomberg

More worrisome, it still feels as if  Yahoo is being run with all the confidence of an awkward teenager on a first date. Yahoo's chairman, in a canned quote, said the board was "committed to the turnaround efforts" of management and believes a spinoff of the operating business makes the most sense, but weighing sale offers "in parallel to the execution of the management plan" is in shareholders' best interest. 

Got that? We believe in our strategy. Unless it turns out we believe in our strategy less than we believe in a fat check from a buyer. It makes sense for Yahoo to listen to the (sometime) wisdom of the crowds. But a company constantly searching for outside validation makes it a candidate for a standing reservation on the psychiatrist’s couch.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects fourth-quarter operating figures in chart.)

  1. Like many tech origin stories, this one started with Microsoft

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net