Yahoo prepares for sale amid low earnings
Yahoo is expected to announce both an underwhelming financial report and final bids for the company’s core businesses after markets close on Monday.
Yahoo began preparations for a sale four months ago. According to CNBC, after first quarter financial reports came in, chief executive officer Marissa Mayer said that Yahoo’s plan for 2016 "is off to a solid start as we continue to focus on driving efficiency, lowering costs, and improving long-term growth." Including, "substantial progress towards potential strategic alternatives for Yahoo." These “strategic alternatives” included the possible sale of Yahoo Finance, Yahoo Sports, and Yahoo Mail to the highest bidder.
Hired in 2012, Marissa Mayer was the fifth CEO to join Yahoo within a span of six years. Her task: to bolster profits for the struggling the search engine. At first, reports looked promising. In the third quarter of 2012, Mayer’s first full quarter at the company, Yahoo reported an 11 percent increase in revenue for the year and the stabilization of display revenue after months of sharp decreases. Mayer, previously a top executive at Google, wanted to shake up Yahoo’s company culture and focus on personalizing web user experience of Yahoo, according to reports from an early staff meeting with Mayer. Mayer also focused on deriving more revenue from its mobile, video, native, and social content advertising vertical -- what the company calls "Mavens."
While revenue from Mavens has grown to $1.6 billion in the past year, Mavens revenue only grew seven percent in the first quarter of this year, compared to 58 percent growth in the first quarter of 2015. In a recent note, investment bank RBC Capital Markets said, "We will be looking closely at the performance of the Mavens segment to determine if Yahoo can offset the declines seen in its traditional advertising segments.”
Other efforts to revitalize the search engine giant have proven unsuccessful. Since 2012, Yahoo has acquired 53 companies, including Tumblr, Flurry, and Brightroll, for a total cost of $2.3 billion. Operating costs have increased $500 million since 2012, while revenue has decreased.
In the first quarter of 2016, Yahoo gross margins experienced a sharp decline, falling from 67 percent to 53 percent. Yahoo’s margins are nine percent and 31 percent lower than competitors Google and Facebook, respectively.
Yahoo’s sales per employee are also low compared with other giants in its industry. Yahoo earns $116,000 sales per person, while Facebook earns $400,000 and Alphabet Inc. (Google’s parent company) earns $315,948 per person. Verizon and AT&T, both bidders in the war to buy Yahoo, earn $185,637 and $144,319 per person, respectively.
In February, Mayer announced a 15 percent decrease in Yahoo’s workforce. This move may increase Yahoo’s revenue per person, however, the financial impact of these most recent cuts are not expected to appear until at least the second quarter, if not the third quarter, of this year. The company’s 2016 second quarter results are expected to show a drop in revenue and profit.
Currently, Yahoo’s most valuable assets are its stakes in Alibaba, a Chinese online marketplace company, worth $31 billion, and Yahoo Japan, worth $8 billion. Bidders in the sale of Yahoo include Verizon, AT&T, Berkshire Hathaway, and Dan Gilbert of Quicken Loans.
Going forward, Yahoo is likely to experience major changes to the company. In a note to investors, BGC Financial technology research director and analyst Colin Gillis, wrote, “Yahoo is over in our eyes.”
