Marissa Mayer’s Wall Street Debut Sends Yahoo! Stock Surging

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Noah Berger / Reuters

Three months after assuming command of struggling Web giant Yahoo!, Marissa Mayer outlined her strategy to revive the company on Monday — and Wall Street liked what it heard. Yahoo! shares soared nearly 5% as Mayer spoke, reflecting a sense of optimism about the purple-hued Internet pioneer that has been sorely lacking in recent years. Yahoo!’s turnaround effort is one of the most closely watched stories in tech, and Mayer faces a daunting challenge.

Yahoo! has shed more than half its value over the last five years, as one-time rival Google has surged to a dominating position in Web search, and new upstarts like Facebook and Twitter have staked out formidable positions in the exploding social networking space. Mayer, a 37-year-old former Google executive, is viewed by many in the tech community and on Wall Street as the company’s last, best chance to reverse a years-long slide punctuated by management turmoil and layoffs.

Mayer’s strategy for the company hinges on incorporating its products — including search, email, and its popular homepage — into the “daily habits” of its users. In this respect, Mayer’s vision echoes the “toothbrush” philosophy espoused by her former boss, Google CEO Larry Page, who has said his goal is to make products that are “important enough that millions of people use them at least once or twice a day.”

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In order to generate this type of user loyalty, Mayer said she will refocus Yahoo! on the “user experience,” which was her speciality at Google, where she played a major role in developing Google’s famously minimalist search box layout, and would eventually spearhead Google’s most successful products, including Gmail, Google News, and Google Maps.

“This job was tailor-made for me,” Mayer told Wall Street analysts after Yahoo!’s results were released. “We’re going back to our roots as a consumer Internet company focused on the user experience.” Those results, incidentally, were solid. The company booked $177 million in profit — excluding the $2.8 billion it made selling half of its stake in Chinese Internet giant Alibaba — which translated to net earnings of 35 cents per share, handily beating Wall Street’s expectations of 25 cents per share.

As expected, Mayer emphasized the importance of the exploding smartphone and tablet market. “Our top priority is a focused, coherent mobile strategy,” she said, adding that “at some point, Yahoo! will need to become a predominantly mobile company.” Mayer said Yahoo! is aiming to hire more mobile engineers.

Mayer’s focus on consumer technology products represents a departure from previous iterations of Yahoo!’s strategy, when the company seemed intent on becoming a new media and entertainment behemoth, particularly under former CEO Terry Semel, who spent over two decades working in Hollywood for Warner Bros. before joining Yahoo! He left the company in 2007. Since then, the Internet giant has had a series of chief executives who failed to reverse the company’s slide.

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Although Mayer said Yahoo! doesn’t have “particular acquisitions in mind today,” she said the company will retain the flexibility to make targeted acquisitions. One of Mayer’s last big initiatives at Google was to purchase the venerable Zagat’s restaurant guide, so it’s not surprising that she is rumored to be eyeing real-time reservation service OpenTable. Mayer has $2 billion to spend. (OpenTable, which is a public company, currently has a valuation of about $1 billion on the NASDAQ stock exchange.) It’s also likely that some of Yahoo!’s cash will go to “acqui-hires,” the increasingly common Silicon Valley practice of buying out small companies in order to absorb their talent.

Perhaps Mayer’s most important Yahoo! challenge is to reinvigorate esprit de corps among the company’s long suffering employees. In an industry that’s changing rapidly, and in which the labor market is notoriously tight, it’s absolutely crucial for Yahoo! to be able to attract and hold on to top talent. More so than in many industries, Silicon Valley programmers gravitate to jobs where they feel invested in the company’s mission. Many talented Silicon Valley engineers, having already made their millions, don’t even need to work, and thus choose companies that they believe in.

If anyone is familiar with the type of corporate culture that motivates engineers, it’s Mayer, who’s an accomplished engineer with undergraduate and graduate computer science degrees from Stanford. (Mayer is worth an estimated $300 million thanks to early stock options as Google’s 20th employee, so she certainly doesn’t have to work, either.) Given her focus on company morale, it’s not surprising that Mayer quickly issued several cultural decrees during her first three months at Yahoo!, many of which seemed derived from her former employer, including a weekly all-hands meeting on Fridays and free food at company headquarters.

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Mayer, a Wausau, Wisconsin native and self-proclaimed “geek,” has moved swiftly since taking the reins at Yahoo!, (in addition to giving birth to her first-born child, a son, on September 30). Last month, she sealed a years-in-the-making deal to sell half of Yahoo!’s stake back to Chinese e-commerce giant Alibaba, raising billions in capital to return to investors, as well as to invest in the company’s future. And last week, Mayer scored a nice coup by snaring one of Google’s top sales executives, Henrique De Castro, to be her chief operating officer.

Mayer has also moved swiftly to outfit each of her employees with a new smart phone — Yahoo! had previously been BlackBerry territory — with options including Apple’s iPhone 5 as well as Google Android devices. Many of these moves, including free food, seem largely cosmetic in the big picture, but they are symbolic of a renewed energy at Yahoo! and an intensified focus on employee retention, which is critical in such a competitive Silicon Valley labor market.

Yahoo! has fallen out of favor in recent years, but the company still has a massive audience of over 700 million users worldwide who visit its properties every month. That’s a serious foundation to build on. Rejuvenating Yahoo! would be a momentous achievement for Mayer. It’s clear that she seeks out big challenges. She’s found one.