Alibaba's Treasure May Not Open Doors for Yahoo
The prospect of adding $10 billion to its cash coffers from the Alibaba IPO isn't enough to encourage investors about Yahoo's future. Under CEO Marissa Mayer, there seems to be a lot of movement at the company, but so far its direction isn't clear. The key question for investors is how Mayer will build a sustainable growth engine, said Andreas Scherer of Salto Partners.
05/07/14 2:18 PM PT
The market is waiting with bated breath to see the exact size of Alibaba's IPO, but investors in Yahoo, which owns about 23 percent of Alibaba's stock, don't seem impressed. Yahoo's shares closed Wednesday at US$34.07, down 6.6 percent.
Yahoo's stake is worth about $26 billion based on the fair value of about $109 billion Alibaba assigned to its shares in March. Yahoo will sell 40 percent of its Alibaba shares, or 208 million, and might get $10 billion or more.
Perhaps investors are concerned because they don't see much of a future for Yahoo.
Yahoo "has very big problems with no easy solutions," Charles Sizemore, a portfolio manager on online investing market Covestor, told the E-Commerce Times. "Its share of the online ad market has fallen to 1 percent, while Google has 51 percent and Facebook 11 percent, [and it] is competing for ad dollars with the likes of Twitter and every other social media startup."
While the windfall from the Alibaba IPO will be welcome, Yahoo "needs a new revenue model, and fast," Sizemore warned.
"Stripping out Yahoo's cash and its Alibaba stake, the market is essentially awarding the rest of the company a value of zero," he said.
Fast Track to Nowhere
Yahoo's scrabbling to find a good business model, Trip Chowdhry, managing director of Global Equities Research, told the E-Commerce Times.
"What is its core business?" Chowdhry asked. "Is it content? Search? Mobile? SMBs? Social?"
Company CEO Marissa Mayer is focusing on mobile, video, social media and news, as well as native advertising, which places promotions within content instead of putting display ads near the top of the page or beside the content.
Yahoo "is doing so many things at the same time that they have an averaging-out effect," Chowdhry said.
Mayer "is trying to refresh the look and feel and experience of Yahoo's properties, but the quality of its offerings has gone down, the system has become unstable, and customers are going away," he added.
Yahoo Finance "is worse than a year ago -- it's unstable, freezes and crashes," Chowdhry continued. "The same with Yahoo Mail -- and Yahoo Finance on mobile has no traction."
Some Market Statistics
Yahoo had more than 6 percent of the global desktop search engine market in April, according to Netmarketshare. Google had about 69 percent; Baidu 17 percent; and Bing slightly less than Yahoo.
Yahoo Mail had 5 percent of the global email client market in April, Litmus Email Analytics reported. That was down 0.2 percent. The top three clients were the iPhone client with 26 percent; Outlook with 14 percent; and the iPad and Gmail clients, each with 12 percent.
Yahoo Small Business is used by 0.1 percent of all websites, w3techs said.
Will a Cash Infusion Help?
The money from the Alibaba IPO will give Yahoo additional room to maneuver, but the key question for investors is how Mayer will build a sustainable growth engine, Andreas Scherer, managing partner at Salto Partners, told the E-Commerce Times.
Mayer might use the money to purchase more companies, including high-profile startups with the potential to pull lots of traffic. One possible candidate might be Pinterest.
That would fit her pattern of behavior since she took the helm two years ago. She has engineered the purchase of 37 companies, mainly small startups, over the past 20 months.
Mayer's biggest acquisition so far has been the purchase last year of blogging site Tumbler for $1.1 billion.
"Yahoo's management is excited about Tumblr now, but our figures show this is a distant sixth property," Chowdhry said. "There is no sense of commitment to delight the customers."
Acquisitions "might be a good option to augment an existing business strategy , but can Yahoo really buy itself out of its current situation?" Scherer asked. "Absent of strong results in [Yahoo's] core business, the Alibaba IPO is an outstanding cash infusion but nothing more."