Yahoo's Mayer Buys Herself More Time
Yahoo had a really disappointing first quarter, which is saying a lot because it had already lowered the expectations bar quite a bit. Even the most skeptical previews of the company’s results -- Re/code's being among the most critical -- didn’t anticipate Yahoo's misses.
The company announced that first-quarter revenue edged up to $1.2 billion from $1.1 billion in the same quarter last year. But when the cost of acquiring traffic from website partners is backed out, revenue came in at $1.04 billion, down from $1.09 billion last year and below the $1.07 billion analysts expected.
Earnings fell to 2 cents a share from 29 cents a share in last year's first quarter. Adjusted earnings (excluding such costs as taxes and stock-based compensation) hit 15 cents a share, versus forecasts of 18 cents.
The earnings release and call with analysts contained more bad news. For example, mobile ad sales -- the revenue source the company hopes will offset declines in its main display-ad business -- jumped 61 percent from the first quarter of last year, but that was down from the previous quarter. The time wasn’t yet right for MaVeNS (Yahoo's coinage for mobile, video, native and social advertising) to take off.
Yet the stock rose after the markets closed Tuesday. The gain was erased today, but there was no huge selloff, even though Yahoo’s quarterly results gave Wall Street plenty to be disappointed about. That’s because, as Bloomberg’s Brian Womack reports, Chief Executive Officer Marissa Mayer said she had “hired advisers to consider opportunities to maximize value for its stake of about 35 percent in Yahoo Japan Corp., valued at more than $8 billion.”
As you may recall from Yahoo's tortured decision to spin off its Alibaba stake, nothing placates disappointed shareholders like selling valuable assets, then distributing the proceeds to investors.
The potentially lucrative sale of Yahoo Japan could be complicated and time consuming, but investors will wait. Mayer just bought herself another year or so to get the company growing.
Clearly Yahoo’s CEO has learned some valuable lessons. Her shareholders are restless; they want results faster than she can deliver them. And so she placates them with periodic feedings of cash. Luckily, she has some valuable assets in her back pocket.
Much was written about Mayer’s lack of experience when she arrived at Yahoo. Her poor leadership skills were the focus of a 7,000-plus word Vanity Fair story and a recently published book by the journalist Nick Carlson.
Yet she’s proven to be a shrewd negotiator. As Vanity Fair reported, when the activist investor Dan Loeb offered to sell a third of his Yahoo stake, Mayer offered to buy even more of his stock at a price that he probably couldn't get on the open market. The deal was too good for Loeb to pass up. He sold the majority of his stake and stopped agitating for change.
She cut a deal with Firefox that Yahoo says helped push search volume in this year's first quarter to a five-year high. And she negotiated a better revenue-sharing deal in a search agreement with Microsoft. Even the Alibaba spinoff is a pretty ingenious way to return cash to shareholders without paying too much in taxes.
Now she’s negotiating with investors, too. "I’ll give you cash from Yahoo Japan if you give me some time," is her implied quid pro quo.
Mayer has proven she has the skill to get what she wants from adversaries, allies and partners. But her negotiation with Wall Street is her riskiest yet. She’s painting herself into a corner if her turnaround strategy fails. If it does, she will have shrunk Yahoo down to a size that attracts an aggressive buyer.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the editor on this story:
Paula Dwyer at email@example.com