Marissa Mayer is gearing up for yet another turnaround plan for Yahoo. Given the company's persistent slump, even a sweeping overhaul may do little to fend off activist investors threatening to wage a proxy war aimed at her removal.
Yahoo’s chief executive, who has overseen falling sales in seven of the past 10 quarters, promised to detail a plan to cut costs and boost growth. The effort, set to be announced with quarterly earnings Tuesday, will probably include job cuts that may affect about 15 per cent of the workforce and involve the closing of some units, sources said.
Once a major gateway to information, communities and entertainment on the internet, Yahoo has in recent years been ditched in favor of Google, Facebook and other companies at the center of people's digital lives. Since her hiring in 2012, Ms Mayer has made scant headway in efforts to restore growth at the web pioneer. Now, she's mired in a complex project to decouple Yahoo's main business from its $25 billion stake in Alibaba Group Holding.
Activist investors dissatisfied with progress have all but threatened a proxy war.
“She’s almost out of time,” said Ryan Jacob, who manages Yahoo shares as part of his Jacob Internet Fund. “At this point, it’s hard to imagine a proxy fight being averted. I would welcome it, given the changes at Yahoo have just been incremental. That’s what’s been frustrating shareholders for years.”
While boasting more than 1 billion users, Yahoo has struggled to keep pace with growth in online advertising, with Yahoo’s share of the US market projected to shrink to 3.5 per cent in 2017 from 5.1 per cent in 2014, according to EMarketer Inc.
Analysts project 2015 revenue, minus sales passed on to partners, will fall 8.2 per cent to $4.04 billion, its biggest decline since 2009.
Yahoo shares, which declined 34 per cent last year, rose less than 1 per cent to $29.57 at the close in New York.
The Wall Street Journal reported earlier Monday on the 15 per cent cuts and the unit closing.
Significant Changes
Starboard Value LP, which last disclosed a holding of less than 1 per cent of Yahoo, has voiced the biggest complaints. On January 6th, the investor urged an overhaul of management and the board, stressing that “significant changes” were needed, including a possible sale of Yahoo’s main internet business.
“It appears that investors have lost all confidence in management and the board,” Starboard said after Yahoo abandoned a yearlong plan to separate the Alibaba stake in a tax-free transaction.
Ms Mayer detailed a new initiative to spin off Yahoo’s main business, a process that could take another year.
Other disgruntled shareholders have voiced their frustration, including Canyon Capital Advisors, which said Yahoo needs to prioritise the sale of some assets, the web operations or the entire business. SpringOwl Asset Management also criticised Yahoo’s management and strategy and called for deep cuts.
Apart from Alibaba, Yahoo also owns a $7.61 billion stake in Yahoo Japan, which will also report earnings this week. After accounting for those two holdings, Yahoo’s market capitalisation of $27.9 billion effectively values its main business at less than zero.
Other Options
Although Ms Mayer and the board downplayed any drastic scenarios last year, they may be warming up those possibilities. Yahoo is considering an outright sale of its business, sources said last month. The company may need another new plan in the face of an expected proxy fight, said the sources.
“At this point everyone’s tired and just wants the board and management to agree and entertain some offers for the core business to be sold,” said Sameet Sinha, an analyst at B Riley and Co. “Yahoo doesn’t have any sort of killer products that can change the trajectory of the business.”
Representatives for Sunnyvale, California-based Yahoo declined to comment. Ms Mayer has remained resolute in the face of activists, insisting the company can be turned around - and that these kinds of changes won’t happen overnight.
“We see a unique moment and opportunity for Yahoo as we move into 2016 to narrow our strategy and focus on fewer products with higher quality to achieve better growth and better results,” she told analysts in October.
Ms Mayer has already been trimming costs, reducing the workforce by more than 30 per cent since she joined and closing some sites. Yahoo had 10,700 employees at the end of the third quarter.
There’s a chance she could surprise investors with something radical, such as slashing half the staff, but that’s not likely to happen - and even then a proxy fight could still happen, said Brian Wieser, an analyst at Pivotal Research Group.
“Right now the big risk -- from an investor perspective -- is that capital will be burned,” Mr Wieser said. “Even if it was a great-sounding proposal, it doesn’t mean they can prevent a proxy fight, let alone win one.”
Bloomberg
