One of the more interesting investment stories in the Internet
space is the turnaround taking place at Yahoo (NASDAQ:
). The company, which has seen its revenues fall sharply in
recent years, has become a target of activist investors amid its
In 2008, Carl Icahn purchased a large stake in the company and
proceeded to muscle his way onto Yahoo's board of directors after
it inexplicably turned down a $47.5 billion, or $33 per share,
acquisition offer from Microsoft (NASDAQ:
Originally, Microsoft bid $44.6 billion or $31 per share for
the company in February 2008. At the time, the offer represented
a 62 percent premium over the stock's closing price. Even after
the deal was sweetened by $2 per share, Yahoo co-founder and CEO
Jerry Yang wouldn't bite. That mistake ended up costing Yang his
He was replaced by former Autodesk (NASDAQ:
) CEO Carol Bartz in 2009. Eventually, Icahn gave up on the
company, resigned from his board position, and sold his holdings
in the stock. Bartz' tenure at Yahoo was filled with controversy
due to her outspoken and aggressive nature and a tendency towards
internal secrecy. Under her stewardship, the stock also went
nowhere to the chagrin of investors.
In 2010, Bartz was named the "most overpaid" CEO in America by
proxy voting firm Glass-Lewis after she reaped $47.2 million in
compensation. In September of 2011, Bartz was fired and replaced
on an interim basis by CFO Tim Morse. She was also forced off
Yahoo's board of directors.
By this time, well-known activist hedge fund manager Dan
Loeb's Third Point LLC had established a large stake in the
company. Currently, Third Point owns 6.17 percent of Yahoo,
making it the company's largest shareholder. Loeb was happy to
see Bartz go and had been agitating for change.
In a letter to the company's board of directors, Leob
"It is now widely accepted that the Board made a serious
misjudgment in approving the hiring of Carol Bartz as Yahoo's
Chief Executive Officer, given her inexperience in the
consumer-oriented internet space. Although we are pleased that
the Board has terminated Ms. Bartz's employment, we fail to
understand why this decision was so long in coming given her
abysmal performance over the last two and a half years. During
this period, Ms. Bartz's poor decision-making and communication
skills publicly alienated the Company's highly respected Asian
partners, as well as its shareholders, sell-side analysts,
bloggers, customers and employees."
Eventually, the board hired PayPal President Scott Thompson to
lead a turnaround. This proved to be a disaster. Loeb was
displeased with the decision and began looking into Thompson's
background. He discovered that the CEO's resume claimed he held a
degree in accounting and computer science from Stonehill
The school, however, did not begin giving out computer science
degrees until four years after Thompson graduated and only had
one computer science class in its curriculum while he was there.
Subsequently, it was proven that Thompson only held a degree in
accounting and that the resume had been embellished.
This was a major embarrassment for the Yahoo board and
Thompson was dismissed. The company, however, ended up paying him
$7.3 million for a tenure which lasted only 130 days. Throughout
all of this, Yahoo shares remained depressed, trading under
On July 16, 2012, however, the company scored a major coup in
poaching longtime Google (NASDAQ:
) employee Marissa Mayer to be Yahoo's next CEO. Mayer joined
Google in 1999 as employee number 20 and was largely responsible
for the iconic look of Google's homepage. She also has been
credited with overseeing the simple, clean and user-friendly
aesthetic of many of Google's other services.
She held key roles in Google Search, Google Images, Google
News, Google Maps, Google Books and Gmail. Prior to leaving for
Yahoo, Mayer was Vice President of Local, Maps, and Location
Services. Mayer is young at 37, attractive, and high energy. Many
on Wall Street have applauded her hiring and Loeb was
In subsequent months, the stock also began to move. Over the
last 6 months, shares are up better than 23 percent. During
Mayer's short tenure, Yahoo closed the sale of part of the
company's considerable stake in Chinese Internet company Alibaba
Group Holding. The deal was originally reached in May prior to
Mayer's hiring, but it closed in September of 2012.
The asset had accounted for a large chunk of Yahoo's market
cap, but was not a part of its core business and was not being
fully valued in the stock price. As a result, shareholders had
long been frustrated by the company's reluctance to monetize the
stake, which was acquired in 2005 for $1 billion.
On September 18, Alibaba said that it had completed an initial
repurchase of about half of Yahoo's 40 percent stake, netting
Yahoo around $4.3 billion after taxes and fees. Mayer further
pleased investors by going ahead with a previous plan to return
around $3.65 billion of the proceeds to shareholders through
At the time, Mayer said of the Alibaba deal, "This yields a
substantial return for investors while retaining a meaningful
amount of capital within the company to invest in future growth."
Following the transaction, Yahoo retains a roughly 23 percent
stake in the Chinese company with Alibaba retaining the right to
repurchase half of Yahoo's remaining holdings.
The company also owns a 35 percent stake in Yahoo Japan which
it has been attempting to divest in recent years. An eventual
sale could further unlock value in the stock. The first reports
of a Yahoo Japan sale came in March 2011 when
that a $8 billion deal with SoftBank was being discussed. In
Reuters again reported
that an imminent sale was likely, but it did not materialize.
In November of the same year, allthingsd's Kara Swisher
that a deal was in the works. Similar stories have cropped up
with regularity ever since. The speculation has always been that
the sale would be made to SoftBank, which already owns 42 percent
of the business. In December, the Yahoo Japan stake was worth
around $6.7 billion pre-tax or $4 billion after taxes and
In any event, a divestiture of Yahoo Japan would further boost
Mayer's reputation with investors, particularly if it is done in
a tax advantageous way. One of the sticking points of a deal has
always been how to structure it so that Yahoo isn't stuck with a
massive tax bill. Currently, however, SoftBank is in the process
of acquiring a 70 percent stake in Sprint (NYSE:
) for a whopping $20 billion and may
not be interested
in adding to its position in Yahoo Japan.
Under Mayer, Yahoo has been focusing its efforts on mobile and
search. In unveiling her strategy to Wall Street, Mayer said
Yahoo "has a unique set of content that we can provide our
users," while noting that a strong mobile strategy will also
drive more search.
Other sources have indicated that Yahoo's top brass want the
company to become the "Google of content," by personalizing and
tailoring the site to individual users. Whereas Google is the
place to search for links, Yahoo's goal is to become the place
people come for content. Mayer envisions a more personal user
experience built around relevant content.
According to allthingsd's Swisher, "that means more
partnership deals from third-party sources, with an additional
social component layer and synced across a number of devices and
platforms, especially video." Mayer has said that she wants to
make the site one of the "world's daily habits." For the time
being, investors are pleased with the direction of the stock
price and there are more catalysts on the horizon.
Given the ongoing turnaround at Yahoo, Wall Street was keenly
interested in the company's fourth-quarter earnings results which
were released on Monday. Yahoo reported net income of $272.3
million or $0.23 per share, compared to $295.6 million or $0.24
per share, in last year's fourth-quarter.
On an adjusted basis, which is comparable to analysts'
consensus, Yahoo said that net income was $369.6 million or $0.32
per share, an increase versus the $306.7 million or $0.25 per
share, the company reported last year. This solidly beat Wall
Street earnings per share expectations of $0.28.
Revenue in the quarter was up 2 percent to $1.35 billion from
$1.32 billion in the year ago period. Revenue excluding traffic
acquisition costs rose 4 percent to $1.22 billion compared to
$1.17 billion last year. Analysts had consensus revenue estimates
of $1.21 billion heading into the report. The year over year
growth in revenue was a very welcome sign to investors who have
grown weary of falling sales trends at the company.
Initially, the stock rose around 4 percent in after hours
trading, but gave back its gains after Yahoo guided for
first-quarter sales of $1.07 billion to $1.1 billion. This was
less than the $1.12 billion that analysts had been expecting. On
Tuesday, the stock closed the session down around 3 percent after
gapping higher at the open. Overall, however, the uptrend in the
name remains intact and it would finally appear that Yahoo's
prospects are starting to brighten.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Gain access to more investing ideas, tools & education.
Get Started on Marketfy, the first ever curated
& verified Marketplace for everything trading.