Yahoo keeps losing ground in the fast-moving Internet market, increasing the pressure on the struggling company to abandon its perpetual turnaround attempts and negotiate a sale with one of several prospective bidders.
The latest signs of Yahoo Inc.’s malaise surfaced Tuesday in its third-quarter earnings report. The lackluster results for the July-September period extended a streak of financial mediocrity that culminated in Yahoo’s abrupt firing of Carol Bartz as CEO last month.
Although cost-cutting measures imposed by Bartz helped boost Yahoo’s earnings after stripping out one-time gains, the company is still selling less advertising at a time when the overall Internet market has been growing.
After subtracting ad commissions, Yahoo’s third -quarter revenue stood at $1.07 billion — a 5 percent drop from the same time last year.
That performance looks even feebler next to the 37 percent increase in net revenue that Internet search and advertising leader Google Inc. enjoyed during the third quarter. Analysts believe Facebook, the owner of the Web’s most popular hangout, is growing at an even quicker pace, although there is no way of knowing for certain because the privately held company isn’t required to reveal its finances.
Yahoo, which is based in Sunnyvale, Calif., doesn’t anticipate an upturn in the final three months of the year — typically the busiest time for online advertising because it coincides with the holiday shopping season.
If it hits the mid-range of management projections, Yahoo’s net revenue in the fourth quarter will fall by about 6 percent from the same time last year.
Normally, Yahoo’s stock price would fall after a ho-hum quarter that offered little hope for better times ahead.
But that didn’t happen Tuesday, largely because many investors are betting that Yahoo’s struggles will make it more likely the company will sell itself as a whole or in part. The company’s stock price already has climbed by more than 20 percent since Bartz’s Sept. 6 ouster.
Yahoo shares gained 39 cents, or 2.5 percent, to $15.86 in Tuesday’s extended trading.
Tim Morse, who is filling in as Yahoo’s interim CEO while also working as chief financial officer, told analysts Tuesday that he couldn’t discuss what the company’s next step might be or when it might take it.
“The board is actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation,” Morse said. “The objective is to deliver on the company’s potential and create value for employees, advertisers, users and shareholders.”
Even before the third-quarter report came out, Stifel Nicolaus & Co. analyst Jordan Rohan issued a report putting the odds of Yahoo being sold at 80 percent.
Most of Yahoo’s attraction lies in its Internet investments in Asia and a worldwide audience of about 700 million people each month. Before taxes, the value of Yahoo’s 35 percent stake in Yahoo Japan now stands at $6.4 billion while its 43 percent stake could be worth about $14 billion, Morse said
That appraisal implies Wall Street is putting little or no value on Yahoo’s U.S. assets, given the company’s market value is $20 billion.
Although it’s still recognized around the world, Yahoo’s brand has been losing its luster as people increasingly embrace social networks such as Facebook and short-messaging service Twitter to keep track of what’s going on instead of relying on a media hub like Yahoo’s website.
“Yahoo isn’t at the forefront of the Internet anymore,” said Benchmark Co. analyst Clayton Moran. “Its assets have grown duller.”
That hasn’t discouraged opportunistic buyout firms from circling Yahoo like vultures hovering over a wounded animal.
The list of firms believed to be considering a run at Yahoo includes KKR & Co., the Blackstone Group, and Silver Lake. Silicon Valley venture capital firm Andreessen Horowitz’s name also has popped up as a potential bidder. There is even talk of Yahoo co-founder Jerry Yang, who remains one of the company’s largest shareholders, teaming up with one of the bidders in a leveraged buyout. Yang already took one unsuccessful stab at fixing Yahoo during an 18-month stint as CEO that ended with Bartz’s hiring in January 2009.
Then there is this wild card: Microsoft Corp., Yahoo’s jilted suitor, rival and now Internet search partner.
If Microsoft were to return with another bid for Yahoo, it would be at a much lower price than the $47.5 billion, or $33 per share, that it offered in May 2008. Microsoft walked away when Yang didn’t immediately jump at the chance to sell at such a high price. Now, Yahoo would be fortunate to fetch as much as $20 per share or about $27 billion, in a sale of the entire company, Moran said.
Microsoft has less incentive to pursue a deal now because Yahoo now relies on Microsoft to process the search requests on its website. That arrangement, negotiated by Bartz, gives Microsoft the traffic and user insights it was seeking when it tried to buy Yahoo three years ago. The alliance so far isn’t producing as much money as Yahoo envisioned, prompting it to persuade Microsoft to guarantee a certain amount of revenue through March 2013 — a year longer than the original promise.
Microsoft CEO Steve Ballmer is expected to be asked about his interest in buying Yahoo late Tuesday when he is scheduled to address the Web 2.0 Summit, an annual Internet conference held in San Francisco.
The only company that has publicly said it may make a bid for Yahoo this time around is the Alibaba Group, a Chinese Internet giant that has a testy relationship with Yahoo. The two companies are already linked through a 43 percent stake that Yahoo owns in Alibaba, but Alibaba CEO Jack Ma wants to find a way to turn the tables. Ma recently told a Silicon Valley audience that he is very interested in buying Yahoo. A Chinese news service reported this week that Ma says he has lined up $20 billion to mount a bid.
But even if Yahoo and Alibaba could agree on a price, they would still have to persuade U.S. regulators to allow a Chinese-owned company to buy a high-profile American company involved in communications.
Even if Alibaba doesn’t make a bid on its own, Ma will likely be a key figure in any takeover attempt because his company is such a vital piece of the Yahoo puzzle, Moran said.
If Yahoo’s board decides a sale doesn’t make sense, then its next job will be picking a new CEO. The top internal candidates are believed to be Morse and Ross Levinsohn, the company’s executive vice president of Americas. Recruiting an outsider could be daunting because of all the uncertainty and challenges still facing Yahoo.
“There is still some appeal in Yahoo, but it is going to require a lot of work to get them back on track,” said S&P Capital IQ equity analyst Scott Kessler.
Apple and Google Face UK Investigation Into Mobile Browser Dominance
Apple and Google aren't giving consumers a genuine choice of mobile web browsers, a British watchdog said Friday in a report that recommends they face an investigation under new U.K. digital rules taking effect next year.
The Competition and Markets Authority took aim at Apple, saying the iPhone maker's tactics hold back innovation by stopping rivals from giving users new features like faster webpage loading. Apple does this by restricting progressive web apps, which don't need to be downloaded from an app store and aren't subject to app store commissions, the report said.
"This technology is not able to fully take off on iOS devices," the watchdog said in a provisional report on its investigation into mobile browsers that it opened after an initial study concluded that Apple and Google effectively have a chokehold on "mobile ecosystems."
The CMA's report also found that Apple and Google manipulate the choices given to mobile phone users to make their own browsers "the clearest or easiest option."
And it said that the a revenue-sharing deal between the two U.S. Big Tech companies "significantly reduces their financial incentives" to compete in mobile browsers on Apple's iOS operating system for iPhones.
Both companies said they will "engage constructively" with the CMA.
Apple said it disagreed with the findings and said it was concerned that the recommendations would undermine user privacy and security.
Google said the openness of its Android mobile operating system "has helped to expand choice, reduce prices and democratize access to smartphones and apps" and that it's "committed to open platforms that empower consumers."
It's the latest move by regulators on both sides of the Atlantic to crack down on the... Read More