Berko: Yahoo CEO must prove herself
Friday, April 19, 2013 7:00 AM
Dear Mr. Berko:
You have never liked Yahoo, which was very evident in two earlier columns. You recommended the purchase several times on the possibility that it would be bought out by a large competitor, such as Microsoft, or by The Carlyle Group or Cerberus or someone else, not because you thought Yahoo’s revenues and profits would grow. The buyout talk made good sense to me, so I took a gamble about a year ago and bought 130 shares of Yahoo in my individual retirement account at $15. It’s now $24.47, and the company hasn’t been bought out, but it does have a new CEO. What do you think of the stock? Should I sell and take a profit, or is it still possible that it will be bought out?
N.T., Syracuse, N.Y.
Since Marissa Mayer moved to Yahoo Inc. (YHOO-$24.47) in September 2012 and installed an office nursery for her newborn son, Mac (some say he should be nicknamed “Password”), the shares have moved up nicely. This is certainly a tribute to Mayer’s impressive successes at Google Inc. There are expectations that she will have similar success at YHOO, which I doubt. It also should be noted that the recent rise in price is partly a result of an aggressive share buyback program with the billions YHOO received from the sale of its stake in Alibaba Group last year. Hold your stock, and read on.
Mayer has some fine arrows in her quiver, but I doubt her bow is strong enough to shoot them true. Some believe that Mayer will have good success improving revenues from online advertising. Talk is that she can effectively capitalize on YHOO’s experience and strength in running branded advertising campaigns. So revenues are expected to grow this year and next. Mayer will continue to purge noncore businesses and technologies, and the cost savings should improve YHOO’s margins, put a few points on the bottom line and improve 2013’s earnings. Of course, the sale of these businesses will contribute nicely to Yahoo’s growing cash cache.
Because 35 percent of YHOO’s revenues derive from its search engine (Google has the best), observers expect that Mayer’s experience at Google can help her grow those revenues to the 40 percent level with better search technology. And Yahoo’s strong balance sheet – low debt plus growing cash flow – should allow her to make complementary acquisitions of venture-backed companies that are seeking an exit strategy.
There are several people on her new team who do this well. However, Mayer has some credibility problems with important rank-and-file employees. Some think she can stem the exodus of the good talent still remaining at YHOO. It may be early to tell, but water-cooler talk suggests that company morale has improved and that Mayer’s appointment is hugely preferable to the past four ninnies hired to run YHOO since 2007.
Though Mayer may have improved the companionable atmosphere in the executive suite and among upper management, she hasn’t proved she can change the company’s ability to execute. Note that the data on many sites under the YHOO umbrella are poorly presented, embarrassingly inaccurate, often incomplete and outrageously outdated. Pigeons using color-coded icons could perform better than the yahoos who are paid $35 an hour.
YHOO’s sales force needs to focus on a positive strategy, not lower prices. Operators at the company’s published landline numbers are too busy surfing the Internet to answer the phones. The grunts at YHOO’s help line speak such heavily accented English that callers can’t understand them. Management needs a plan to address competition from social networking sites, such as Facebook and Twitter. YHOO’s mobile strategy is still unclear, while product delays, sales challenges and turmoil in engineering remain evident. Mayer has a lot of proving to do.
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