Will Alibaba, a CEO Video Star and Momentum Get Yahoo Across the $30-a-Share Rubicon Today?
Today, after years of sitting in stock doldrums, Yahoo is poised to cross the $30-a-share threshold, a price which is within one dollar of the $31 that Microsoft offered to buy the company for in 2008.
Shares of the Silicon Valley Internet giant closed at $29.66 a share yesterday, an astonishing 10.3 percent rise in one day that handily beat overall market gains.
The long-beleaguered Yahoo stock has not seen those prices in a long time. In fact, not even on Feb. 1, 2008, when Microsoft launched its hostile bid for it, which was a 62 percent premium for Yahoo’s stock at the time. In fact, shares of Yahoo have not seen levels above $30 since 2007, largely due to its consistent downward slide on a wide variety of key metrics — from revenue growth to search share declines to consumer disinterest to management mishegas to, perhaps most importantly, a paucity of innovative products.
Ironically, Yahoo turned in another weak performance on Tuesday, with revenue in its second quarter staying flat, even as broad industry results have surged; display advertising continuing its perpetual fall down the stairs, along with some worrisome search stats; and management giving downward guidance for the year ahead.
So, what does Wall Street do? It buys, and buys big.
While those who pay attention to fundamentals could be justifiably perplexed by this, the reasons for the stock’s explosion are quite clear: Rich Chinese assets, a new CEO who can make anything look fresh, and simple excitement around a positive story of turnaround.
First and foremost in the surge is the gigantic mountain of value that Yahoo has in its stake in China’s Alibaba Group. In a deal engineered by co-founder and former CEO Jerry Yang, former CEO Terry Semel and former President Sue Decker for just $1 billion, the asset has appreciated wildly and has given current CEO Marissa Mayer a massive piggy bank that is the envy of all. After selling off half and garnering many billions that have been used to buy back stock — a good way to prime the stock-rise pump is to buy back close to $4 billion in shares — Yahoo still has a 24 percent position that it is valuing at $8.1 billion.
Others are spinning visions of Alibaba being worth much more, due to an IPO that many expect toward the end of this year or the beginning of next. While sources close to Alibaba said that the company will stick to a $70 billion to $80 billion valuation range, it has not stopped others from speculating that it will be $150 billion or more. At the time of the IPO, Yahoo is required to sell one-half of its shares, which will bring it much cash to spend.
That’s why CFO Ken Goldman, on the video stream of the Q2 earnings call, stressed the focus that Yahoo is putting on the transaction, noting that he had the finest minds at work on how to structure it for maximum tax benefit.
He also noted that at least some of those billions will be going to more share buybacks going forward, which always makes investors happy. Yahoo has already taken 190 million shares off the market for $3.6 billion, resulting in an increase in earnings per share.
Goldman also doubtlessly was behind the interesting tactic of releasing a full financial breakout of how Alibaba was doing yesterday, the first time Yahoo has done so, which showed a 71 percent rise in revenue and net income that leaped threefold at the Chinese company.
In other words, he made Yahoo a proxy for Alibaba, which is both deeply cynical and also vastly clever. “If Yahoo can’t get its own core business turned around, it’s a lot more attractive to portray itself with a wink as an Asian investment company,” said one person close to the situation, noting that Yahoo’s other asset in the region in Yahoo Japan is worth more than $10 billion. “And until Mayer can do something to fix its actual performance, that’s just what it is.”
She has used that cash to try to do just that, with an energetic grab for a clutch of more than two dozen mostly mobile startups over the last year, as well as the capstone purchase of blogging platform Tumblr for $1.1 billion, also in cash.
While Tumblr is unprofitable and has very low revenue — pretty much the story of all of the purchases she has made — Mayer has been adept at selling Wall Street on the notion that these “acqhires” will soon bring glorious innovation to Yahoo, as well as numerous tasty products that consumers will eat up.
It could happen — Yahoo’s new weather app is the first terrific one in a very long time — but such a thing will be a much longer time in coming, as Mayer doubtlessly knows well. Creating a cohesive, nimble and effective team is tough enough, but making it happen in what has been a very dysfunctional company is a corker of a challenge.
That’s why she has spent a lot of time on cultural and morale changes — most of which she has lifted directly from her former employer, Google, and all of which play very well in the press — such as free food, nifty smartphones, regular and required staff gatherings, and even trendy fitness wristbands for all employees. Mayer even dressed up in a purple Yahoo exclamation-point costume to boost the fun factor.
In other words, she is game, and certainly proved that by her live video performance this week for the Q2 earnings. And, make no mistake, it was a performance, designed to have weak results portrayed as just a tiny bump in a very happy, shiny future.
While I cannot believe that it actually worked, I also found the effort bold, and a very good way to get people to like you for putting an actual face on your company, even if what you are reporting is not so positive.
(I also thought, and this is just my opinion: This is a woman who is clearly planning to run for high political office.)
In any case, Mayer’s video star turn surely has other companies in Silicon Valley mulling whether and how their leaders would have to match this eventually. But it is Mayer who did it first — even if her broadcast pairing with Goldman looked a little like Yahoo was turning into a folksy local news team. I happen to love folksy, and also hokey and awkward, which it was in spades.
So did the audience, which ate it up whole, as far as I can tell. To bring it home, the meticulously prepared and perfectly arranged Mayer employed a big dose of entrepreneurial hope, some inspirational charts (her “chain reaction of growth” — people, then products, then traffic, then revenue — is simply impossible to argue with), and stats that are not particularly specific.
She touted mobile growth, for example, as rising, even though it is rising for everyone in tech, but did not provide figures on monetization of that mobile growth, or where it is happening or even how that translates into solid businesses that pay the bills.
(Details are such a bummer!)
That’s why Mayer has managed to get no one to care about today’s unpleasant details that paint a very clear picture of a business facing enormous challenges that are hard to fix even if truckloads of Chinese money are dumped all over the place.
Which is where momentum comes into play, and why Mayer also uses the sports metaphor of Yahoo being on a series of sprints, of which she is in the second, that centers, she said, on execution, after getting the morale, talent and excitement in place.
As most who study even basic physics know, linear momentum is defined as “the product of the mass and velocity of an object.” Simply put, if you can get a heavy vehicle moving fast, only a bigger force can stop it. Momentum is from Latin — a combination of movere, or “move,” and mentum — and it first meant “moving power.”
Mayer, ever the Google geek from whence she came, clearly knows all about that.