San Francisco: Marissa Mayer has begun a fact-packed fight-back against Yahoo’s activist shareholders, attempting to defend her efforts to turn round the internet company’s core business, in its first earnings announcement since Alibaba went public.
Yahoo’s hefty stake in Alibaba had given Mayer a honeymoon of a little more than two years as investors bought into the Silicon Valley company as a way of profiting from the fast-growing Chinese ecommerce group. Just over a week after Alibaba went public last month, a couple of new shareholders turned on her, worried the core business was still faltering and that Mayer could not be trusted to spend the Alibaba proceeds wisely.
The former Googler mounted a five-pronged defence on Tuesday, saying: “We’ve achieved much more than many people realise.” She did this while revealing better-than-expected earnings on the back of mobile growth, share buybacks, and yes, the proceeds from that Alibaba stake.
Yahoo made a long string of acquisitions in the first couple of years of Mayer’s tenure, from the $1 billion (Dh3.67 billion) it spent on Tumblr to a number of small “acqui-hires” struck as a way of luring talent to the ageing company. Some shareholders had become anxious that Mayer would spend the rest of the Alibaba money in the same way — and not keep a close eye on what would boost revenue.
But Mayer hit back by talking up her buybacks. So far in her tenure Yahoo had spent $7.7 billion on share buybacks, she said, compared with $1.6 billion on mergers and acquisitions. This is equal to 24 per cent of the company’s shares since July 2012, when she took over as chief executive.
However, she then said M&A was a “necessity” when a company was suffering from “quite aged” legacy technology, and talked about how possible acquisitions in the programmatic and video advertising markets could help the company.
The prospect of a windfall from the Alibaba stake — both the shares Yahoo has just sold and the remaining stake that is locked up until next year — had got investors worried about how much might end up in the hands of the US taxman. So far, Yahoo had provided little comfort, saying last quarter it would pay “full tax” on the IPO proceeds.
Activist investor Starboard Value had suggested a tie-up with AOL, another internet company with a history stretching back to the last dotcom boom, could reduce its tax burden.
This quarter, Mayer and Ken Goldman, Yahoo chief financial officer, did not say they would tie up with AOL but did say they had hired tax experts and were considering “promising alternatives” to maximise the value of the next Alibaba stock sale. Goldman said they might be able to spin off part of Yahoo or otherwise play with its structure.
Yahoo’s revenue is now growing, but slowly — up 1 per cent this quarter. Many investors are concerned that the company’s cost base is bloated, with Starboard also saying an AOL deal would be a way to cut staff and save up to $1 billion. Mayer’s acquisition spree brought in new blood but she has not announced a major round of lay-offs of existing staff.
However, on Tuesday, she released new figures that showed Yahoo had done some cost-cutting: some 2,000 of roughly 12,000 staff have been axed after performance reviews and eight offices were shut, she said.
When Mayer took over in 2012 Yahoo was stuck on the desktop, with no mobile business to speak of. Until this week, she had mainly spoken about the jazzed-up apps the company was releasing without breaking out revenue from mobile.
Yahoo said on Tuesday that mobile revenue was $200 million during the quarter, about a sixth of total revenue, and that it had 550 million monthly active users — more than half its users — on mobile. But that is much less than younger rival Facebook, which has managed to shift so rapidly to mobile in the past 18 months that it now makes more than 60 per cent of its advertising revenue on mobile.
Yahoo has been relatively quiet about Tumblr since it acquired the blogging platform in 2011. The company, like many social start-ups, had no real revenue or profits but was focusing on user growth. Analysts had worried in particular about how it would eventually make money when it was laced with unsavoury content from which advertisers might shy away.
Mayer decided now was also the time to open the kimono on Tumblr. She said it could report its first earnings before interest, tax, depreciation and amortisation by the end of next year, as more than 250 “top brands” advertised on the platform. Tumblr’s audience has grown 40 per cent since Yahoo acquired it, while time spent by the average user has also risen.
Concerns about objectionable content remain, with Carlos Kirjner, an analyst at AllianceBernstein, asking Mayer if such content was responsible for a lot of the increased time spent on the site. Mayer countered that she has seen a lot more ‘”not safe for work” content on other sites.
By the end of the earnings call, the verdict from Mayer’s audience could be seen in the share price. Yahoo stock was up about 3 per cent — having been up more than 5 per cent earlier — indicating investors are at least intrigued, if not fully convinced by her plans.
— Financial Times
