turn around Yahoo needs a turnaround itself,
repeating a pattern of futility that has hobbled
one of the Internet’s best-known companies for
the past decade.
Like her predecessors as Yahoo CEO, Mayer
has been unable to snap the company out of
a financial funk despite spending billions on
acquisitions and new projects. Yahoo’s stock has
sunk by 35 percent so far this year as investors’
frustration with the follies have mounted,
spurring calls for her replacement.
“This is like an ‘emperor has no clothes’ situation,”
says Eric Jackson, a Yahoo shareholder and
managing director of the New York hedge fund
Ader Investment Management. “The company
and the shareholders would be better served
with her leaving.”
Jackson, though perhaps Mayer’s most
outspoken critic, isn’t alone.
After conferring with investors, SunTrust
analyst Robert Peck recently wrote a letter to
Yahoo’s board recommending that the directors
consider firing Mayer. Activist investor Jeffrey
Smith of hedge fund Starboard Value is urging
Mayer to abandon a spin-off of the Yahoo’s most
valuable asset - a $30 billion stake in Chinese
e-commerce giant Alibaba Group - and sell the
company’s Internet business instead.
If Mayer continues down her current course,
Smith is threatening to lead a shareholder
mutiny aimed at overthrowing Yahoo’s board
next year - a rebellion that, if successful, could
lead to her ouster.
Yahoo’s own employees seem dispirited as
well. Mayer’s approval rating among those
who posted on the employer-review website
Glassdoor.com has fallen to 73 percent from 99
percent after her July 2012 hiring.
At least a dozen members of Yahoo’s
management team have left in the past year.
The departures have included two of Mayer’s
top lieutenants, former marketing and media
chief Kathy Savitt and former development and
acquisitions chief Jacqueline Reses.
Yahoo Inc. declined to comment for this article.
Mayer has repeatedly expressed confidence
that Yahoo is heading in the right direction,
most recently during her October review
of the company’s disappointing quarterly
performance. “I have very aggressive
expectations for Yahoo’s core business,” she said.
“We have the right talent, the right strategy, and
the right assets to drive long-term sustainable
growth for our investors.”
Yahoo’s revenue fell 8 percent from the previous
year after subtracting the company’s advertising
commissions, its steepest decline since Mayer
became CEO. It’s likely to fare even worse in
the October-December quarter, given that that
company expects net revenue to drop by about
20 percent.
Now Mayer is drawing up plans for another
major shake-up, one likely to eliminate
hundreds of jobs as Yahoo sharpens its focus
on “fewer products with higher quality,” as she
said in October. Mayer promised more details
in January.
It wasn’t supposed to get this bleak with
Mayer at the helm. She came to Yahoo as a
widely respected technology executive who
had helped build Google into the Internet’s
most powerful company while repeatedly
outmaneuvering Yahoo with products that
attracted more traffic and advertising.
Mayer’s arrival was supposed to herald a
promising new era after the disheartening
downfalls of the four CEOs that preceded her.
Those executives - Terry Semel, Jerry Yang, Carol
Bartz and Scott Thompson - either resigned or
were dumped when it became apparent that
they couldn’t revive the growth that made
Yahoo one of the Internet’s biggest successes
during the dot-com boom of the 1990s.
Things started well. Mayer bought dozens of
startups to bring in more engineering expertise
in mobile devices and overhauled Yahoo’s apps
for weather, sports, Flickr and email. She made
big splashes by hiring former NBC News anchor
Katie Couric to handle online video reports and
acquired the trendy blogging service Tumblr
for $1.1 billion.
The moves haven’t really paid off, although
Mayer continues to boast about Yahoo’s
progress in the important mobile and video
markets. None of Yahoo’s services rank among
the top 50 free apps in Apple’s store, and
the company’s expansion into original video
programming resulted in a $42 million charge to
account for the duds.
Investors are still awaiting proof that that Tumblr
or any other of Mayer’s acquisitions will be
worth what Yahoo paid.
“Across all dimensions, her efforts haven’t
delivered the results that people might
have expected,” says S&P Capital IQ analyst
Scott Kessler.
At one point in Mayer’s tenure, Yahoo’s stock
had more than tripled from where it stood
when she took over. The gains, though, were
almost entirely tied to Yahoo’s large stake in
Alibaba, which it acquired in a $1 billion deal
negotiated a decade ago. That holding - in
retrospect, Yahoo’s best investment ever -
soared in value as Alibaba’s e-commerce bazaar
boomed, prompting investors to snap up
Yahoo shares in order to profit while Alibaba
was still privately held.
When Alibaba went public last year, Yahoo sold
a portion of its holdings and then announced
plans to spin off its remaining $30 billion stake
into a new holding company to avoid paying
taxes on future gains. Now that strategy, too, is
under a cloud; the Internal Revenue Service has
declined say that the spin-off will qualify for the
expected tax exemption.
Mayer plans to complete the spin-off by January
anyway. Starboard’s Smith thinks she has that
exactly backward; he wants Yahoo to retain
the Alibaba stake and sell its websites, mobile
applications and advertising services. It’s unclear
who would buy them, given their malaise.
Kessler likens Mayer’s plight to a star
quarterback who signs with a National Football
League franchise that’s in the doldrums. “When
the quarterback starts out, people get very
excited about the potential and opportunities,”
he says. “But when the performance on the
field turns out to be less than stellar, people are
understandably going to blame the quarterback
that came in with so much fanfare.”
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