When Marissa Mayer assumed command of Yahoo! two months ago, the purple-hued Internet pioneer was in deep trouble. The company had experienced a years-long slide from its former glory as onetime rival Google has sewn up dominance of the Internet search market. Meanwhile, younger upstarts like Facebook and Twitter have surged in prominence, while Yahoo! has struggled to come up with a coherent business strategy, which makes it hard to execute on one. Yahoo!’s stock price has fallen by nearly 50% over the last five years, and prior to Mayer’s ascension, the company had gone through a series of unsuccessful chief executives.
Yahoo! is certainly not out of the woods — this turn-around will take years to accomplish — but there are signs of renewed vigor at the company, as Mayer lays the foundation for the “Marissa era.” This week, Yahoo! freed itself from a major albatross around its neck, by finally closing a years-in-the-making deal to sell half of its stake in Chinese e-commerce giant Alibaba. Mayer’s work is only just beginning — and there’s a certain matter that she will be attending to in just a few weeks — but for the first time in years, Yahoo!’s fortunes seem to be on the rise, as respected Silicon Valley-based tech columnist Chris O’Brien of The San Jose Mercury News observed Wednesday.
At the very least, Yahoo!’s long-suffering investors are in for some relief thanks to the Alibaba deal, which will generate $3 billion that the company plans to return to its shareholders. That’s on top of some $646 million in stock buybacks that Yahoo! has already conducted since May. Thanks to the Alibaba deal, Yahoo! will still retain $1.3 billion to use for future acquisitions or capital investment. There had been some discussion about whether Yahoo would return the full proceeds of the stake sale to shareholders, or keep a portion for itself, but in the end, the company’s leaders appear to have arrived at a Solomonic compromise. “This yields a substantial return for investors while retaining a meaningful amount of capital within the company to invest in future growth,” Mayer said in a statement. Yahoo! shares rose 1.5% on news of the deal, and were trading at $15.82 in after-market action on Wednesday.
The Alibaba deal is Mayer’s first significant accomplishment since taking over as CEO of Yahoo! two months ago. Industry observers greeted her hiring warmly, because the beleaguered Internet company desperately needs an injection of fresh energy. An accomplished engineer with a sharp eye for design, Mayer joined Google in 1999 after earning undergraduate and graduate degrees at Stanford University, where she specialized in artificial intelligence. At Google, Mayer built a reputation as a brilliant and intense executive with a passion for the “the user experience.” She played a major role in developing Google’s iconic search box layout, and would eventually become responsible for many of Google’s most successful products, including Gmail, Google News, and Google Maps.
Over the last two months, Mayer has been busy settling into her high-profile new role — last month she was named No. 7 on Vanity Fair‘s “New Establishment” list. So far, she’s been assembling her top team and making relatively small but symbolic changes in some of Yahoo!’s cultural practices, many of which appear derived from her former employer. For example, she established a weekly all-hands meeting on Fridays — a classic Google practice. She decreed that henceforth all food in the company’s Sunnyvale headquarters shall be free, another Google trick aimed at maintaining employee morale. (Free food for hungry Yahoos will also be available in the company’s New York City offices.) Finally, Mayer has made provisions for each employee at Yahoo — previously BlackBerry country — to be issued a new smartphone. (Choices include Apple’s iPhone 5 as well as devices from Samsung, HTC and Nokia.) Not surprisingly, these moves have been warmly received by Mayer’s troops.
Wall Street analysts greeted the news of the Alibaba deal with somewhat muted praise — something bordering on relief, really — but several cautioned that Mayer’s real challenge will be outlining a vision and strategy for the company’s turn-around, not to mention actually executing on that strategy. Here’s a selection from three prominent Yahoo! analysts:
- Ben Schachter, Macquarie Research: “We are pleased to see this close and that 85% of the funds will be returned to shareholders (this includes buybacks since the deal was announced back in May)…Beyond the deal, we are still waiting for the new CEO and her team to layout a strategy to revitalize the company. Without a strategic plan in place, it is hard for us to have a strong view one way or the other on the stock. We are reiterating our Neutral rating and $ 17 price target.”
- Doug Amnuth, JPMorganChase: “We believe the renewed commitment to capital returns essentially puts Yahoo! back on track with the plan it outlined in May when the Alibaba deal was first announced. After running the combined effects of the transaction and likely share repurchases through our model, we are raising our price target to $19…And while we are incrementally positive, we maintain our Neutral rating as we look for greater insight into Yahoo!’s strategy under new CEO Marissa Mayer and the impact to estimates over the next several quarters.”
- Herman Leung, Susquehanna Financial Group: “We have started to see the first step in monetizing the Asian assets at Yahoo with the completion of the first stage of the Alibaba deal netting $4.3bn in cash…Bottom line, we think this is a net positive on the Asian assets, but we are looking forward more to when the new CEO, Marissa Mayer, plans on addressing the company’s long-term strategy.”
Yahoo!’s fall from grace has been one of the most unfortunate stories to watch in the technology world. This is a company, after all, that was an early Internet pioneer and one of the most recognizable tech brands in the world. But over the last several years, Yahoo! has been adrift, lacking a clear strategy, not to mention effective management. Mayer’s appointment as CEO is the most positive development for the company in years. As one of Silicon Valley’s most respected executives, expectations for Mayer are high. The Alibaba transaction is a nice win for her, and an impressive first coup only two months into her tenure. But Wall Street — not to mention the rest of corporate America — will be watching closely to see if she can deliver more.