Yahoo getting smaller, to shed staff

The company said it would lay off about 15 per cent of its 11,000 employees

Yahoo getting smaller,  to shed staff
Yahoo is moving full speed ahead — in every direction. The Internet pioneer said Tuesday that it was open to offers for its core assets, which would represent the end of Yahoo as an independent entity. That is a shift from the company’s position as recently as December.

Yahoo is also proceeding with plans to spin out those core assets. That would leave its most valuable property, its holdings in the Chinese e-commerce giant Alibaba, in the original company. Investors like that idea.

But what Yahoo is really focusing on is revitalising itself under the guidance of Marissa Mayer, who has been chief executive since the summer of 2012. “What I am trying to do is reassure people,” Mayer said in an interview. “You could classify it as a call for patience. I am asking shareholders to understand this is a complicated situation.” In a conference call with analysts, she added, “It is going to be very busy.”

Very busy, and very riveting. Whether the intense, glamorous and controversial executive will get more time to fix the company promises to be one of Silicon Valley’s most prominent dramas of 2016. The next move is up to activist investors, who can try to elect a new slate to the Yahoo board. The company said that one of its directors, Charles Schwab, was resigning because of other demands on his time.

Whether it is sold or survives, Yahoo is getting smaller. It said it would lay off about 15 per cent of its 11,000 employees. By the end of the cuts, the company said its workforce would be about 42 per cent smaller than it was in 2012.

In addition to being smaller, Mayer said, the company would be simpler. Yahoo will shed assets, cut expenses and focus on the areas of the company that are growing. When she arrived at Yahoo after working as an executive at Google, she said, “We were sitting on $5 billion in deteriorating revenue with no clear path to growth.”

In essence, she said that Yahoo was no longer deteriorating and was poised for better times — not in 2016, perhaps, but 2017.

Investors seemed not quite sure how to react to the news, which came with the release of Yahoo’s quarterly results. Yahoo shares, which slumped for most of Tuesday as the overall market fell, at first perked up. But in after-hours trading, the stock declined slightly.

“The company is open to all options,” said Mark Mahaney, an analyst with RBC Capital Markets. “There is a distinct possibility that Yahoo as an independent company no longer exists within two years.” Starboard Value, a Yahoo investor, accused the board in January of neglecting its responsibilities by ignoring potential offers and dragging its feet in coming up with plans to spin off its core assets.

“Each quarter is worse than the last,” Starboard wrote in a letter, adding that requiring “another year for shareholders to wait while the existing leadership continues to destroy value is not acceptable.” Starboard did not respond to requests for comment on Tuesday. But SpringOwl Asset Management, a firm whose investors have been publicly critical of Yahoo’s management, was not satisfied with the proposed changes or happy about Mayer’s attitude.

“I expected defiance, and I expected a convoluted solution,” said Eric Jackson of SpringOwl. “My expectations were exceeded on both counts.” He noted that Yahoo, despite supposedly being willing to entertain offers, did not mention hiring an investment firm to facilitate the process. “It remains to be seen whether this is a real shift or not,” Jackson said.

Mayer said in the interview that the company already had retained advisers to help with the spinoff, and they would help evaluate any offers for the core assets. The board, she said, would be “receptive” to offers.

Still, Yahoo’s language may formally begin what could be months of inquiries from both strategic and financial suitors. Some have been open in expressing their interest: Late last year, Verizon’s chief executive, Lowell McAdam, said at a conference that he would look at buying Yahoo if it were put up for sale.

Others, including private equity firms, have been quietly studying a potential acquisition of Yahoo’s Web businesses, according to people briefed on the matter. Some firms, like Silver Lake and TPG, previously weighed bids for a minority stake in Yahoo in 2011 when the company was under pressure from different activist shareholders.

As Mayer looks to complete her fourth year as chief executive, Yahoo stubbornly remains a marginally profitable company that is not growing. That was underlined in its fourth-quarter earnings report.

Revenue came in at $1.273 billion, compared with $1.253 billion in 2014. Operating earnings were 13 cents a share, in line with forecasts. Last year, Yahoo earned 30 cents a share in the quarter. It also recorded a $4.46 billion charge in the quarter for certain businesses, including its blogging site Tumblr, which it acquired for $1 billion.

Alibaba deal

Jackson of SpringOwl said that Tumblr had been Mayer’s signature acquisition and that she had increased the number of employees when she began at Yahoo. “She’s saying, ‘We’re going to sharpen our focus,’” he said. “Why didn’t she do that 3 1/2 years ago?”

Yahoo’s stock, and Mayer’s tenure, have been propped up by the company’s wildly successful investment in Alibaba. A plan to spin off the shares to investors faltered when the Internal Revenue Service refused to bless the deal. In December, Yahoo said it would instead spin off its core assets while leaving the Alibaba stake in the original company. Kenneth Goldman, Yahoo’s chief financial officer, said in the conference call, “I do feel comfortable that we can do it this year.”

Yahoo was a mess when Mayer arrived from Google. The executive suite was a revolving door. The company’s market share in search was dropping. Yahoo Mail was an also-ran and efforts in mobile were minimal.

Mayer’s hiring drew the world’s attention. But at a moment when Google and Facebook, either of which Yahoo might once have been able to buy, are roaring ahead, there is still no clear sense of what Yahoo should be. Supporters of Mayer say the company would be in worse shape without her.

Statistics released this week by eMarketer, a research firm, showed just how much Yahoo was struggling. In 2015, Yahoo captured $3.37 billion in digital ad revenue worldwide, or 2 per cent of the market, eMarketer estimated. That is down from a 2.4 per cent share in 2014. Mobile ads were equally dismal.

In search, Yahoo is barely holding its own. It will capture 2.1 per cent of the $94.07 billion worldwide search market this year, the same share as in 2015, eMarketer said.

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