Only a third of Yahoo's $21b valuation derives from US assets.
Yahoo's stock-based compensation, awarded to employees and managers with low morale or who foster poor morale, is generous even by the standards of generous compensators like Google or Facebook.
A picture of Yahoo emerges as a company that manages a stable asset, not one that forges new ground. Maybe an appropriate stance for a half-century-old media giant, but a sad fate for a company many of us not long ago still considered a "cool" Internet player.
In her self-evaluation for a "B-" Grade, Yahoo CEO Carol Bartz notes that the company has become more focused. This Bloomberg article about the Yahoo turnaround cites recent new hires in sales and engineering as an example of the forward motion now that the tough stuff has been done. (Some Yahoos are also tweeting about the hiring, which should be no consolation to those recently downsized.)
"Geeking up" by hiring more engineers (after letting go less productive units) was one of our urgent recommendations in our Open Letter to Jerry Yang in June of 2007. It's taken 2.5 years to get that going?
In subsequent scorecards we focused on a couple of other things Yahoo could do to make a splash.
First, although the merger fell through, we're back to what we recommended in the Open Letter:
"...to this wish list I'd certainly add an interesting new partnership with Microsoft, or inking a deal to re-partner with Microsoft for search and search marketing."
Note: to re-partner with Microsoft for both search and search marketing, our recommendation of June 2007. This deal is now inked, and we're waiting for full implementation; seems like this will drag out months.
For achieving partial success on matters like this (some of them certainly disappointing for Yahoo and its shareholders), Bartz certainly deserves her B- rating (no lower).
One interesting piece of unfinished business from the wish list was urging Yahoo to acquire local search juggernaut Yelp. Recently, Yelp was rumored to be under consideration by Google to the tune of $500 million. Then, rumor had it the deal was dead. Today, Google announced a mobile feature called "Near Me Now," which some have called a potential Yelp Killer. Perhaps this would rightly send Yelp heading into the arms of a sympathetic suitor like Yahoo. But some of that depends on Yahoo's financial health and stock price over the next few months.
Even though Yelp would greatly strengthen Yahoo by helping them push hard into local search, that would also leave one major bit of unfinished business. The mobile market has progressed rapidly with the leading players, RIM, Apple, and now Google, having control over OS's as well as handsets. That leaves Yahoo in a weakened position. How to strengthen it? We always thought they'd make a nice fit for Research in Motion, since both companies seem to be in Google's and Apple's sights. It's unlikely Yahoo can play in this space with full chutzpah like Google and Apple, but they're a sympathetic brand that needs to grow or die and do so soon? They need to pull a big rabbit out of their hat here, it feels like. A confusing array of partnerships and "friendly arrangements" with their cutthroat competitors? You're only kidding yourself. Of course there's no way that Yahoo merges with RIM given the very different cultures at the two companies, and given that RIM's market cap dwarfs Yahoo's currently at $36b vs $23b.
Maybe the solution is cleaner if Yahoo continues to strengthen ties with Microsoft, before ultimately being absorbed by them. Then the three (RIM, Microsoft, Yahoo) could combine forces in the mobile market.
Today Yahoo is sending out details of a settlement in a Class Action lawsuit about its negligent and sloppy provision of partner traffic to advertisers, dating back through the Overture days and all the way back to GoTo.com, before Yahoo even owned a PPC engine. The story is presented as a minor hiccup by a couple of news outlets as of this writing. Barry Schwartz at Search Engine Land points to the $20 refund component, though by my reading that's only reserved for any company that is now "out of business."
In the letter, Yahoo makes the usual noises about a settlement not being evidence of any admission of guilt.
But the description of what advertisers give up if they opt into the class reads like a detailed overview of every nefarious practice in pay-per-click advertising sales since the beginning of recorded time. (After the jump, the cut-and-paste.)
More important than the small refund is Yahoo's agreeing (1) to give advertisers a tool to fully control partner placement; (2) to better disclose online on the "Traffic Quality" portion of their website where traffic may come from; and (3) to enhance something called the "Click Investigation Request Tool" advertisers use to request information on specific traffic partners.
This non-admission-of-guilt will seem to many advertisers like a full recap of the often slippery relationship Yahoo has maintained with reality, especially in the realm of partner traffic. It comes as an albeit hollow victory for the many advertisers who were treated as an ATM by click arbitrageurs, rogue publishers, and Yahoo themselves.
And now for the ugly stuff:
"The Settlement will release Class members' Released Claims against Yahoo!. The complete definition of "Released Claims" is set out in the Settlement Agreement, which is available atwww.inreyahoosettlement.comor from the Claims Administrator. In summary, and without limiting the definition of "Released Claims" set forth in the Settlement Agreement, Released Claims include any and all claims, causes of action, demands, rights, liens, obligations, suits, appeals, sums of money, accounts, covenants, contracts, controversies, attorneys' fees and costs, expenses, losses, damages, judgments, orders, promises whatsoever, known or unknown, matured or unmatured, suspected or unsuspected, concealed or hidden, whether sounding in law, equity, bankruptcy, or in any other forum, from January 1, 2000 through and including September 22, 2009, that have been or could have been asserted in the Action. This release includes without limitation any and all claims concerning domain parking sites and pages; typosquatting sites and pages; bulk-registered domain name sites and pages; software applications; downloadable applications; pop-ups; pop-unders; "sliders"; "sidebars"; "injected ads"; adware; spyware; malware; malicious software; error implementations and pages; email campaigns; clicks that result from self-targeting; untargeted or random placements within the Distribution Network; ads displayed on sites or pages that lack any bona fide content, or any content at all; or ads shown to Internet users who have not conducted a search or viewed bona fide content related to a Yahoo! pay-per-click text advertisement."
To put it in perspective, if you weighed their Q1 2008 revenues against Google's Q1 2009 revenues, Google would have been three times as big. (That Yahoo sports more employees per revenue dollar by far is, of course, part of the problem -- and now the source of Carol Bartz f-bombs.) But year over year Yahoo declined again ($1.5 billion in revenues as against Google's $5.5), so proportionally it becomes even smaller as measured against its main rival.
Carol Bartz ranting in a conference call? Imagine what might have been accomplished if this type of common sense had arrived on the scene eight or nine years ago. Or at least a couple of years ago, when we urged Jerry Yang to "get rid of the clutter, and geek up." It's becoming clear now that Bartz doesn't do this for ego's sake; it comes from a focus on results.
Past coddling of redundant employees on mysterious missions is only part of the problem, of course. Yahoo's no startup, and austerity won't be the answer either. Yahoo faces similar fundamental problems to any digital media business. Few have definitively solved the business model problem because eCPM's on digital content -- other than search and classifieds -- are too low and there is no proof they're going to trend rapidly upward. As targeting improves and as buyer-seller efficiency issues finally get solved, there is still some upside around the corner.
And what about monetizable "inventory" -- or the degree of open-to-some-monetization user attention to the various online channels? Trending upward, to be sure. But not as rapidly as it once was.
The only sure answer is that the trend is up and that clutter and fragmentation need to give way to continued consolidation. Despite hopes to the contrary, there won't be a huge number of profitable digital media companies simply because inventory and ad rates are finite. The few left standing will have made good consolidation and acquisition moves. Bartz, for one, seems to understand all of this.
I was recommending you dollar-cost-average your way into tech stocks, by buying GOOG and YHOO at bargain prices. Today is another sickening day on the markets, so what better time to get our buying over with and go back to sleep for another five years.
I no longer feel strongly about following up with more YHOO, however. If you like gambling on takeover offers, then take a plunge here at $12.04, much as if you were betting on the Browns to cover at home for the rest of the season. But that isn't rational investing, it's educated roulette. (There is a difference?)
Take your remaining imaginary funds and plow them into GOOG. They have good prospects and this is a relatively safe entry point here at $341. Plus: emoticons in GMail!
If you're a real investor, though, you should probably be finding well run companies that are trading near cash value. Real bargains won't be found in these large tech stocks still trading at multiples much higher than the S&P average.
Edit: did I say $12.04 and $341? I meant $11.86 and $337. I told you this thing isn't for the faint of stomach!
Sorry for the slow pace of blogging, but with blogging being "dead," you could hardly blame us.
So in our Post-Semel Scorecard here 14 months ago (a followup to the Open Letter to Jerry Yang of 17 months ago), we noted Yahoo hadn't made much progress on any of our wish-list items (or their own, for that matter). We weren't very happy about it then - for Yahoo's many great people, or for the rest of us. Now, it's pretty much too late.
In the interim, an unlikely gift was offered: a $32+ per share total takeover offer from Microsoft. Particularly in search, this might have created a strong #2. It would have precipitated the downsizing needed to forge ahead into high growth areas. And it might have provided the economic stability needed to ride out the storm that is set to torpedo display ad revenues.
But Jerry and the board got cute. In hindsight, it looks really, really bad. Probably because it was. Now, the talking heads on MSNBC et al. are jumping on the ballistic bandwagon, ranting about the board's irresponsibility, merely parroting what T. Boone Pickens already said not-so-subtly about Yahoo management being "pathetic." It's a terrible shame, because it was a great company with great potential.
Now that the trend is clear -- Yahoo is earning barely pennies a share heading into a diving market for display ads -- things couldn't look bleaker. We told you so? Yes, we really did. And we are at a loss as to why virtually none of the correct actions were taken. Let's review the scorecard items.
* We asked Yahoo to consider acquiring a hot search startup like Powerset. They didn't. In June 2008, Microsoft acquired Powerset. Although this technology is unlikely to set the world on fire, Microsoft shows it is at least trying to work on improving its standing in the sector of online behavior that leads to dollars-per-share in profit, not pennies (or losses). To be clear: committing to a search for the next great thing in search would have led to certain acquisitions as "symptoms" of a real commitment to growing in that high-intent navigation area of the consumer online experience. No one symptom should be seen as a cause of growth or success, but if you aren't exhibiting symptoms of trying, you probably aren't committed to it.
* We recommended that Yahoo acquire Yelp to solidify its role in local search with a young-adult demographic. While the Searchmonkey technology is a nice, esoteric way of partnering with great publishers like Yelp, it's mostly a paper exercise for now. Yelp remains independent.
* There's no way that Yahoo could make any type of buyout offer now for a company like GoDaddy. When their stock was trading above $25 they could have not only afforded to make such interesting plays to solidify their reach in consumer and business services, but they could have conceivably gone to market to raise funds for a major acquisition. The good news (and there is little with the stock trading below $14) is that a bunch of smaller plays in these kinds of areas (domains, et al) are going to be selling at fire sale prices. If the shares of companies like Marchex slump further, they could prove to be good value - though they'd need to be integrated and redundant parts eliminated, so the bargain would have to be good. Here, major opportunities were missed, but this is also a time when Yahoo should cut through the doom and gloom and continue to shop for bargains. Remember how cheaply Yahoo and Google bought great brands like Flickr and Blogger? Surely there are popular services out there in a similar vein, such as PlentyofFish.com (1.5 employees and a direct competitor to Yahoo Personals).
* Research in Motion will likely stay independent unless times get really tough. In any case, Yahoo is now officially too small to buy them, and Microsoft probably would be the most serious contender there given the standing offer they are rumored to have in at RIM.
* Now that the company is barely at break-even and all hell is breaking loose, Yahoo is belatedly proceeding with deep job cuts. Along with the bizarre quasi-poison-pill maneuvers intended to foil a Microsoft bid, the protracted dithering about reducing bloat no doubt led to cynicism and drift within the ranks, to say nothing of a whole range of perverse incentive structures. The all-lower-case communiques from the CEO, far from being endearing, just seem to sum up the cavalier approach taken to the turnaround effort (that's what it was supposed to be, wasn't it?) that started when Yang took the helm.
* We recommended a partnership with Microsoft in search, long before the buyout offer came along. We never loved the idea, we just got tired of watching them compete with one another, and felt that platform consolidation was the tidiest solution for all of us. Anyway, not only did no partnership happen, but Yahoo turned down a $32+ per share offer for the whole company. Many observers feel a full acquisition by Microsoft is still a shoo-in. Yahoo will be lucky to get $18 this time, and that's only because the stock price will stay near there on buyout rumors. On sheer financials the stock should be around $9-10, if that.
* We received piecemeal PR communiques about various "tweaks" to the look and feel of the Yahoo home page, etc. But nothing bold was ever done, and the need to recommit to search (the profitable, cool part of the business) kept receding farther and farther into the distance.
All of that, sadly, is the continuation of a very long trend that started long ago. Many times over, since the late 1990's, Yahoo truly could have committed to search, to say nothing of management discipline and geek culture, but it frequently failed to do so. It got off track many times, in spite of many strengths. Too many body blows to recover fully. Let the speculation begin as to what will become of the Yahoo brand going forward.
Continuing where we left off in the bargain bin stock picking vein...
Today would be a great time to move forward and buy your second of three tranches of hypothetical Google (GOOG) shares as we dollar-cost average our way into the market.
But more importantly, take as much as you can muster, and buy your first half of two globs of Yahoo (YHOO) shares. Any serious buyout offer coming in now will have to go over $18-20, which is in itself a huge discount to what Microsoft actually offered awhile back. There is a more than even chance of a 50-100% pop in YHOO over the short term. Go for it.
Disclaimer: I don't recommend stocks. This is a paper exercise. Do your own due diligence.
Through the lens of this lengthy article on why Yahoo isn't as much of a failure as critics say, I can safely put to rest three common rumors about Danny. The following are the myths. I say they're not true. (so they're not not not true, that's for sure)
"Danny sure doesn't write very much anymore." Really - that's what someone said to me yesterday. Then he writes 2,200 words about Yahoo not being a failure, on a Friday, and posts video with it, to boot.
"Danny's finally off the cold medication that makes him curse in articles." Garlinghouse just wishes he could write his memos like that.
"Danny is absolutely NOT cozying up to the black hats while pretending to be white hat!" OK, so I have a pretty fine-toothed comb, and to me, if you're recommending potential Yahoo CEO's they should be pretty drab characters who have never made one dime from any black hat SEO or ad network activity; characters like engineering types and even the nebulous operations wonks cited by Icahn are more appealing to me than folks with product management and business development (but largely public relations) backgrounds. If they'd made some of the Fakes and Schacter's of the world into co-CEO's, the company would be better off today (and these folks wouldn't be leaving).
But seriously, I think I'm just jealous that Danny writes so much, and so well. And I love that he agrees with me that Yahoo should try something radical, like making the home page just the search page... I said just try it for a month.
(P.S. Don't you think my Open Letter to Jerry Yang of June 2007 was so much nicer than the mean letters sent to Yahoo by Carl Icahn a year later? Whether it's you, me, ordinary shareholders, or Icahn, it's hard to avoid the sense that Yang hasn't provided a progress report on any of the urgent priorities Yahoo set in 2007. And without telling you something you can't already guess, some Yahoo employees are incensed that he turned down the white knight Microsoft offer, only to partner with Google.)