With Nearly 10 Percent Drop in Week After Alibaba Cash Switch, Yahoo Shareholders in “Marissery”
Never let it be said that Yahoo shareholders aren’t expressive.
After a 9.2 percent drop in its stock this week — from climbing to $16.30 a share last Wednesday to a downward-sliding $14.73 close today — the negative reaction to the Silicon Valley Internet giant’s announcement that it might not return a $4 billion-plus windfall from the sale of part of its stake in China’s Alibaba to shareholders via a stock buyback or dividend has been pronounced.
“Marissery (like Misery) is what Yahoo shareholders are experiencing,” joked — sort of — one institutional shareholder to me in an email, referring to new CEO Marissa Mayer, whose decision it appears to be to reevaluate Yahoo’s payout promise.
In a filing last week, the company said that the former Google execs recent look-see review of Yahoo, “may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase.”
Previously, both board member Dan Loeb and its CFO Tim Morse had reiterated many times that Yahoo was likely to return the money from its sales of half its Alibaba assets to investors.
In fact, in meetings with some bigger holders of Yahoo — some of whom had been unhappy with the sale of the Alibaba stake in the first place, since the Asian company’s value has been growing fast– Yahoo execs and directors had assured them of the stock buyback.
“When we grumbled about the Alibaba sale, we were promised that the money would come back to shareholders,” said one big Yahoo owner.
That was pre-Mayer, of course, who never agreed to any such thing and whom many sources said wants the all that dough to buy some tasty companies, invest in new product innovation and rebuild Yahoo’s advertising technology business.
The Yahoo board, including Loeb with a six percent share of the company, obviously agreed with her on the switch. And now — at least for the short-term — they are paying the stock price for the move.
It has also resulted in a lot of Wall Street analyst angst, including yesterday’s sharp take by Jordan Rohan of Stifel Nicolaus that the plan to buy and build would result in dilution and lowered margins and also will be tough to pull off. Thus, he did some lowering of Yahoo’s stock from a buy to a hold.
The current price means that the value of Yahoo’s core business is nearing zero again, given analysts have generally noted that the company’s cash and Asian assets — including in Yahoo Japan — represented $13.50 a share.
That price is widely considered the floor for Yahoo shares, so hovering so close to it is irksome to investors, especially since stocks of other Web companies like Google and eBay at year highs.
In one of the less furious posts on Yahoo Finance message boards — which have moved from overall euphoria about the Mayer hiring to decidedly less sanguine tones — one person wrote: “This company has proved over & over again that it is unable to deploy capital in an intelligent way that actually adds shareholder value. The shareholders own the company — they have clearly indicated to yhoo that they want the money returned to them.”
That said, another made a good counter argument: “We are losing the investors that bought for the quick money, plain and simple. The capitulation will cease, YHOO will stabilize, and [Marissa Mayer] will either succeed or fail. I believe she will succeed.”
Indeed, Yahoo shares might bounce back in the coming days, as investors look for opportunities to buy in the dip or if Mayer announces a significant deal — such as a sale of Yahoo Japan assets — or new strategy.
One thing is clear: If Yahoo keeps its Alibaba cash, and perhaps even more from an eventual sale of its Yahoo Japan assets, how well Mayer deploys it will be the tale of the future tape.
Until those results are in — which will most likely take a long while — Yahoo can perhaps take comfort in the fact that it is not Groupon, which down 16 percent for the week on worrisome customer billings.