And now, investment fans, this quick sports break: Through 21 Major League Baseball seasons, Bill Buckner batted a respectable .289, won a batting title and collected more that 2,700 hits. But he’ll always be remembered as the poor sap who let the ball roll through his legs and into right field in Game 6 of the 1986 World Series.
His Boston Red Sox lost the match, then the series, then watched as Buckner’s error went down in history as one of baseball’s biggest boners.
It’s kind of like that for Yahoo (ticker: YHOO), a stock that on the surface posts some Buckner-esque numbers. Its market capitalization is $30 billion, its stock price has doubled in the last five years, and it owns a healthy 15 percent stake in the Chinese e-commerce juggernaut Alibaba Group Holding (BABA).
But you could call Yahoo the Bill Buckner of high tech as it’s predominantly known for one thing: choking. To begin with, its once-dominant search engine was trounced into the dust years ago by Alphabet (GOOG, GOOGL).
“Ten years ago, people spoke of Yahoo and Google in the same breath, as if they were the same thing,” says Angelo DeCandia, professor of business and accounting at Touro College in New York. “Google was founded by engineers and that mindset permeated everything they did. But Yahoo’s corporate culture, especially at the highest levels of the company, did not reflect those technological values. Its founder Jerry Yang was more interested in the business side and created a company that was nothing more than a portal onto which they grafted other products, sometimes whole companies.”
“A fundamental business problem with Yahoo is, what exactly is its business strength?” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. “As a search engine it simply isn’t as popular as Google. You don’t ‘Yahoo’ someone or something, you ‘Google’ them.”
Since missing the chance to become an English language verb, Yahoo has suffered bad luck in pivotal situations, time after time. Most recently, it scrapped efforts to sell its Alibaba stake, arguably a last gasp to regain investor confidence.
“Yahoo is a deeply uncelebrated company with a low valuation at odds with its hugely profitable business model,” says Barry Randall, a technology portfolio manager at Covestor and a registered investment advisor based in Boston. “Even the phrase ‘at odds’ doesn’t do the situation justice. Yahoo is the third-largest digital media property in the U.S. in terms of daily users, yet its public image is that of an Internet has-been.”
If indeed it’s a has-been, it could soon become a “was.” As of last month, Yahoo put itself up for sale. It’s a sad chapter, and perhaps the closing one, for an Internet pioneer that lost its way and never quite recovered. Now, those who would change players smell blood.
First to go could be embattled CEO Marissa Mayer, whose tenure has been mired in controversy and criticism since she took the reins in July 2012. She effectively eliminated telecommuting, alienating many employees in the process — especially Yahoo’s working mothers. Mayer also instituted a bell-curve employee ranking system where those on the low end of the scale were given the boot — allegedly as a cover for what amounted to illegal layoffs. It’s led to a high-profile lawsuit filed last month by Gregory Anderson, a former Yahoo editor fired in November 2014.
Once a star at Google, where she was lured from, “Mayer now spends her time staunchly defending her strategy while closing offices, laying off employees and generally preparing for a long siege,” Randall says.
And here’s what that siege looks like: “There is shareholder activism,” says Jon Budish, executive investment strategist in residence at Fairleigh Dickinson University’s Silberman College of Business. “Starboard Value is pushing for control of Yahoo’s board.”
On Thursday, Yahoo fought off Starboard by naming Catherine Friedman, a former managing director of Morgan Stanley,and Eric Brandt, former CFO of Broadcom Corp., thus bypassing representation from the New York-based hedge fund. But investors have until March 26 to nominate new board members, and Starboard — which wants a majority of the board dumped if Yahoo doesn’t sell off its assets quickly — isn’t exactly known for sitting on its hands while companies pussyfoot.
Starboard pushed, and pushed hard, for a merger between Office Depot (ODP) and OfficeMax. Then they pushed some more, this time for Staples (SPLS) to acquire Office Depot. Citing antitrust concerns, Federal Trade Commission has stepped up efforts to quash the $6 billion deal by this spring.
What Starboard Value would do if it gains access to Yahoo’s board isn’t clear. But for some time, it’s been whispered that Verizon Communications (VZ) is the No. 1 contender for landing Yahoo’s core assets. A Verizon bid hasn’t materialized yet — but Yahoo investors better hope it does, market watchers say.
“I think if you are a Yahoo shareholder, you should be hoping that Verizon or Microsoft (MSFT) would make a bid for the company,” Budish says.
Yahoo does have strengths. In 2015, mobile revenue topped the $1 billion mark, increasing 36 percent from 2014. But investment difficulties outside Yahoo’s direct control may have sealed its fate.
Far from the sure bet Wall Street touted it to be, Alibaba stock has tumbled nearly 25 percent from its first day of trading in September 2014. And speaking of tumbling, Mayer led the charge to land Tumblr in 2013 for $1.1 billion. It didn’t turn out so well.
Last month, Yahoo sheepishly acknowledged that it wrote down Tumblr’s value by $230 million — more than a fifth of the purchase price. It’s a far cry from the rich returns seen by Facebook (FB) after acquiring Instagram for $1 billion in 2012.
“In the last five months, Yahoo has seen more analyst downgrades than upgrades,” Johnson says. “By contrast Alphabet (Google’s new umbrella company) is profitable and actually sells at a lower price-to-sales ratio. About the only positive I see for Yahoo is that it has a strong balance sheet with $6.21 of cash per share.”
It’s enough to wipe off the omnipresent exclamation point off the official moniker “Yahoo!” and replace it thus: “Yahoo?” The brand name at this point has enough bad juju that simply allowing it to disappear, and its assets to reorganize, may be the best way to get a fresh start. Or the only way.
“Yahoo is the McDonald’s of Silicon Valley,” Randall says. “It seems like everybody has worked there. But only some of those people will admit to it. And that’s why it’s likely that Yahoo’s traditional Internet business will end up in the hands of a Verizon or Time, Inc. Valley powerhouses like Google and Twitter are too cool to hang around with a dorky square like Yahoo.”
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It’s the Moment of Truth for Yahoo Stock (YHOO) originally appeared on usnews.com
