You would think the settlement of a major dispute would goose the stock of a company, but Yahoo’s deal with its Chinese partner Alibaba Group on Friday did exactly the opposite.

Despite the clearing of an obvious overhang to its shares, the stock of the Silicon Valley Internet giant dropped almost three percent Friday to close at $13.10. While the ongoing federal budget wrangling was partly to blame, it was only a very small part with an overall market decline of under one percent.

A tepid reaction to the deal — in which Yahoo, Alibaba and Japan’s SoftBank came to terms over the spinoff of Alibaba’s Alipay payments unit after much wrangling over the move — came quickly from Wall Street analysts.

A report titled “Yahoo Inc: Alipay Agreement: Better than Nothing, But Not That Great,” by J.P. Morgan’s Doug Anmuth, was typical. Pointing to no clarity on an IPO of the Chinese assets of Alibaba and that “prior to the divestiture, Alibaba Group owned 100% of Alipay and all of its income, which is now reduced to 37.5% ownership of Alipay and 49.9% share of the pre-tax income,” he noted that Wall Street “has recently assigned no value to Yahoo!’s share of the asset.”

Well, less than zero, if the stock decline is taken into account, which means Yahoo’s market cap is now just over $17 billion.

According to sources close to the situation, especially since Yahoo’s Asian assets make up more than $9 billion of that valuation, private equity investors and others are pulling out their spreadsheets once again about a possible takeover or privatizing of Yahoo.

Several months ago, for example, former News Corp. exec Peter Chernin had been contemplating a friendly bid with partners such as Providence Equity Partners and others. While there have been rumors recently that he has reengaged in that effort, that is unclear.

Sources also note that Yahoo’s top execs, especially CEO Carol Bartz, and also members of its board, are perplexed that the settlement in China — a positive development — had the opposite effect on the stock.

It’s part of a continuing decline. Yahoo shares are down almost 26 percent in the past three months. Most Web stocks — such as Google, Amazon and Microsoft — are strongly up in that period. The only other obvious laggard is AOL, which is down almost 16 percent in the past three months.

“We anticipate there will be some markets we will have to divest,” Mr. Stephenson said in an interview.

AT&T’s proposed plan to buy T-Mobile from Deutsche Telekom AG for $39 billion is expected to face heavy scrutiny from regulators and opposition from consumer-advocacy groups and competitors. Rivals Sprint Nextel Corp. and Clearwire Corp. have already been vocal about the harmful impact from the deal.

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An interesting divestiture considering Icahn’s history with the company, which includes the proxy contest he mounted in 2008 to oust Yahoo’s board of directors after it rejected Microsoft’s $47.5 billion acquisition offer. With Yahoo’s (YHOO) stock trading at around $15–a far cry from the $33 a share it was valued at around the time of the Microsoft (MSFT) offer–and the company continuing to lose search market share, there’s little left to hold Icahn’s interest.

BoomTown liveblogged the AOL conference call, the first since it spun off from Time Warner (TWX).

And essentially, it was all about turning the Internet icon around. Bottom line: Still turning, but the lid is super-duper tight, folks!

Earlier this morning, AOL (AOL) reported its fourth-quarter results, which beat very, very low Wall Street expectations.

As MediaMemo reported:

After factoring out one-time charges, AOL posted earnings of 71 cents per share on revenue of $810 million. Wall Street expected earnings of either 62 cents or 66 cents per share, depending on who you ask, on revenue of around $766 million.

And while advertising revenue was lousy, it wasn’t as bad as Wall Street had expected–it dropped eight percent, and analysts had assumed it would show a double-digit decline. Subscription revenue, which still drives the company, though, dropped more quickly than analysts assumed, down 28 percent.

5:39 am PT: I jumped on the call a few minutes late, since AOL’s fancy system for listening to the call using a Webcast would not play in Apple’s (AAPL) Safari browser. Or else I am an idiot.

In any case, Firefox worked and we pressed on!

When I finally got on the call, it was perfect timing, since CFO Arthur Minson was delivering the results in a deeply glum manner, but with a very nice New York accent. It could have also been a Boston accent.

It was definitely a glum accent! “To be clear,” said Minson, AOL’s model “was not working.”

Well, it was nice to hear the obvious!

Minson continued to smack AOL around for quite a bit, which is a good strategy–to drop expectations in order to raise the company’s prospects with Wall Street later.

But the team led by CEO Tim Armstrong was on it! It has cut employees and other costs! It has decided to dump businesses that aren’t working! It has even cutting coupons, metaphorically speaking! This was serious beeswax, people!

5:52 am: Armstrong came back to answer questions from the analysts gathered.

He’s all about the content and how it will bring in the audience to sell advertising to.

The next question: Others have tried this niche content strategy and failed. Why was Armstrong different? Also, can AOL control its search destiny?

Armstrong begged to differ on calling AOL’s content strategies “niche.” Engadget is HUGE!

“It’s a scale that…advertisers find very attractive,” he said. “It works for consumers, it works for advertisers.”

As to search engine ranking? Search is not the only game in town, said the man who made his fortune as an exec at search giant Google (GOOG).

There are other fish in the sea, said Armstrong, such as Facebook and Twitter. “Our strategy on distribution is not relying on search,” he added. “Fragmentation is our friend.”

The next question: How’s AOL on display advertising compared with others?

What else was he going to say? Great, natch! Lots of low-hanging fruit (whatever that means!).

“Advertisers tend to vote where momentum is,” said Armstrong. “AOL is the company people are used to kicking around.”

No longer! The 98-pound weakling is now 99 pounds!

6:08 am: Another question on how AOL is improving itself. No more obsession with page views! No more tricks, like too many slideshows.

“As a net takeaway, the company is getting healthier, although you may see bumps,” said Armstrong.

It sounds painful!

More questions about fixing what’s broke.

And then, finally, a different one on what AOL is going to do around products and what it is planning on acquiring to help it do so, as well as what’s up with its search deal, which is up for renewal soon.

“We’re bringing product mentality back into the company,” said Armstrong, continuing to bash the previous administration about its overspending and lack of innovation.

Apparently, AOL is also done with “Hail Mary” acquisitions.

As to the search deal, Armstrong said AOL likes Google, but it is not making any commitments!

Also: “If you’re looking at this deal to squeeze out extra pennies,” look elsewhere, said Armstrong, who uses the word “partner,” which could also translate to “Microsoft” (MSFT).

What about making capital expenditures? We’re comfortable, said Minson. And no more short-term thinking!

More bashing of the past, which was getting a little tiresome.

6:22 am: What about divestitures?

Minson noted that he could not comment, but took a long time doing so.

A question about brand advertising and whether it is in good shape.

Yes, said Armstrong, but what else was he going to say again, since AOL sells brand advertising?

Last question: What is the key driver of margins at AOL going forward? As in: What the heck is going to get this baby humming and not sputtering?

“I think it comes down to user engagement,” said Armstrong about brand advertising.

To wrap up, after a decade of quiet, concluded Armstrong, who also underscored that the management team is more interested in execution than pleasing investors: “We’re live.”

Apparently, reports of AOL’s death are greatly exaggerated.

UPDATE: I got to chat with Armstrong for a bit after the call and he reiterated his essential talking points, including the need for execution, the importance of running AOL for the long term, and how he thinks Wall Street has patience for the company.

“AOL had a premise of making decisions for next week,” he said. “We are now stringently focused on the user.”

Obviously, Armstrong added, there will be focus on expanding AOL’s ad business. “That expansion is strong and continuing,” he said.

But there were no in-place strictures he called “guardrails.” And anything not in the guardrails? Off the road!

As to investor patience? “My guess is that we have multiple years,” said Armstrong.

Uh-oh, Yahoo CEO Carol Bartz was expected to appear on the Internet giant’s third-quarter earnings call, but she has apparently “came down with something,” according to CFO Tim Morse.

BoomTown is sending over chicken soup right now, but let’s hope she gets her vaccinations tout de suite!

Worst of all, no sassy quotes or cursing, replaced by a very earnest Morse, who sounded like he was once a Boy Scout.

After the markets closed, Yahoo reported better-than-expected earnings on still lackluster revenues.

Overall, the conference call boiled down to one quote from Morse that seems to have been selected as the Yahoo (YHOO) buzzword of the moment:

“The theme for third quarter was stabilization.”

2:02 pm PDT: Investor stuff from guy who sounded like a robot that I completely ignored, since I was much more interested in a conversation between two women about a bad date this past weekend, which I eavesdropped on in its entirety while liveblogging from a Starbucks (SBUX) in San Francisco.

By the way, the man whom the ladies are ripping was a very unstable date!

2:04 pm: Morse jumped on and gave everyone the bad news about Bartz being sick and the good news about the better-than-expected net income, while also updating all the various happenings of the quarter.

“I am happy to report that our Q3 revenue came in above our guidance range,” said Morse, who sounded somewhat jaunty.

Morse reeled off numbers, numbers and more numbers, some stuff about the new marketing campaign ($18 million spent so far and $45 million in the next quarter!) and other stuff about the cost cuts and fourth-quarter guidance.

Also, no sale of the company’s Alibaba in China or the Yahoo! Japan stake, thank you very much!

2:12 pm: Morse also gave a quick update about the search and online advertising partnership Yahoo has struck with Microsoft (MSFT).

His message: The Silicon Vally Internet icon is not out of search, because it is not about the algorithm, but a better search product.

Tim, you might want to roll that claim back, especially since you also might want to notice how well Google (GOOG) has done with its giant math-brains in the search business.

Morse tried mightily to channel Bartz on search, using a comparison she has made about the Intel (INTC) chip, which is widely used by computer makers. Said Morse, it’s the “differentiation” that matters!

I wonder if Yahoo will keep repeating that one, even as its search share continues to decline.

But Morse did make a funny about how many ex-Yahoos are on the Microsoft payroll now, so the partnership transition should go smoothly.

Well, there’s that!

2:28 pm: Morse mentioned Yahoo’s analysts day next week, and then opened up the call to questions.

Analysts always ask very dull questions at earnings calls and this one proved no different.

The first was about display run rate and about the search market in comparison to Google.

What’s the good word? Stabilization, of course!

The next question was about eBay (EBAY), which seems far from the point.

Morse agreed and cut it short.

Then, a question about guaranteed placement and stock buybacks. Zzzzzzzzz–even Morse sounded bored.

The Starbucks lovelorn ladies had left by now, so I was too.

2:37 pm: The next question concerned the affiliate business and how it might be affected by the Microsoft deal.

I immediately summoned the barista, since it was clearly time for a double espresso!

A question came next about when the display ad business would recover from the econalypse. Morse: Stabilization!

Then, a query about gross margins and whether they can be maintained. Morse was not saying, except to point out that there was a “good, old-fashioned, get-your-hands-dirty” attitude at work at Yahoo now about watching costs.

I was suddenly worried about dirty-handed Yahoos, just when the CEO is sick!

Use Purell, please–or suffer the wrath of Judy!

2:43 pm: Another question on ad sales and quality. Thus, I moved onto mainlining coffee beans en masse. I long for a visit from Juan Valdez!

Then, a question about Q4 guidance, which was not good enough for one analyst, who wanted more.

Morse did not really bite, although he talked a lot.

Next, a question about slow-growing page views and what was Yahoo planning to sell of its various assets.

Morse tried to be all silver-lining about page views and would not talk about specific divestitures (nor did he mention the appointment of a new head of Yahoo M&A).

“We continue to look at the landscape,” he said.

What about more job cuts or hiring, since Yahoo added 200 people in the quarter? Morse noted Yahoo was staying strong in tech talent and was “putting feet on the street” in advertising.

Also something about paid inclusion, but a new person at Starbucks was having a really good cellphone argument, so I zoned out of Morse-talk for a second!

2:56 pm: A question about premium and nonpremium inventory. Looks good on premium, said Morse.

The next query was about the different metrics between the new and old homepage, as well as a request for more info about the analyst day next week.

Morse refused to “steal my own thunder” on what is going to happen there. But, there will be thunder? I am always dubious when it comes to Yahoo and thunder.

As for the homepage, Morse said Yahoo was still evaluating the performance.

2:58 pm: Mobile. Aaaaaghhh, another chance for Morse to say not much about anything substantive. Morse: Better and more established! Translation: No moolah yet!

A head count question. Will improvement come from cost cuts due to the Microsoft deal or revenue improvements?

Three guesses and the first two don’t count. Thanks for the row-boatloads of money, Microsoft!

Something about bookings and small-to-medium businesses. Morse did not understand the question and neither did I.

Next, a question on search monetization, which has weakened. Answer: Stabilization!

3:02 pm: A question about the new $100 million branding campaign. Morse: “It’s very, very early.”

Some deal question and then one about behaviorial targeting, which Morse said will apparently be a “lifeblood” of the future.

Incredibly, Morse has gone hog-wild chatty with Bartz laid low and is asking for more questions, without making one good joke or salty remark yet.

I was completely losing it when it gets to ad exchange details and not as coffee-saturated as I needed to be.

Finally, the LAST question: Another one about divestiture and acquisition.

As if Morse was going to answer, referring instead–as he has many times in the call–to his “script.” Yahoo will buy stuff, Yahoo will sell stuff, but pretty much a no-comment!

And on that note…Carol: Please, pretty please GET WELL SOON!

Until then, here is a minidose of Bartz, via video snippets from an interview with me at the seventh D: All Things Digital conference.

Her lively tone seen here at D7 would have been a good thing at today’s earnings call:

(And, here is a link to Yahoo’s presentation of its financial highlights, for those with a hankering for even more numbers.)

]]> http://allthingsd.com/20091020/liveblogging-yahoo-third-quarter-conference-call-bartz-comes-down-with-something-and-cfo-carries-on/feed/ 1 http://allthingsd.com/20081011/weekend-update-101008/ http://allthingsd.com/20081011/weekend-update-101008/#comments Sat, 11 Oct 2008 07:00:25 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6600 The best thing that can be said of the week ending Oct. 10, 2008, is this: It’s over.

Marked by panic selling and wet-your-pants fear, it was one of the worst weeks in the financial world’s history–a week that cut the legs out from under Google (GOOG), beat Yahoo until its market cap bled purple and caused the Dow Jones Industrial Average to swing more than one thousand points on an intra-day basis.

It was a week that saw Sequoia Capital warn its portfolio companies to prepare for a protracted downturn or, in the words of partner Michael Moritz, be “spattered on windshields and radiator grills and be forgotten.” Turns out Bubble 2.0 sounds a lot like Bubble 1.0 when it pops.

Beneath the screams of agony echoing across Wall Street, there was other news worth noting:

• Advanced Micro Devices (AMD) announced plans to spin off its manufacturing operations.
• “Legal” turned out to be a poor choice of adjectives for RealNetworks’ RealDVD (RNWK), the company’s new “legal” DVD ripper. A judge extended the temporary restraining order barring the company from distributing it.
• This just in: Time Warner’s (TWX) AOL and Yahoo (YHOO) are still talking about a merger and Generalissimo Francisco Franco is still dead.
  Where is Microsoft (MSFT) in all this? Sitting on the sidelines hoping the deal will go through.
• Finally, activist investor Eric Jackson, the creator of the Yahoo! Plan B investor community, revealed Yahoo! Plan C: his hedge fund’s divestiture of its Yahoo stake.

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