Yahoo – Another last hurrah?

Apollo bets $5bn on a fourth attempt.

• Apollo is paying $5bn to acquire 90% of Verizon’s media assets in yet another sure signal that the only good thing that Marissa Meyer did for Yahoo shareholders was to sell it to Verizon.
• Yahoo is a has-been Internet titan that has catastrophically failed to capitalise on the opportunities that were in front of it on no less than three occasions.
• These were:
  • First, 1^st mover: Yahoo was one of the first movers into the Internet, and at the height of the Internet bubble it had a commanding position.
  • Unfortunately, in the years that followed, Yahoo squandered this position by doing very little to advance the functionality of its assets.
  • This was largely a result of lackluster and mediocre management.
  • The result was that search was ceded to Google, social networking and images to Facebook and so on.
  • Second, Microsoft: Yahoo rebuffed a $44bn offer from Microsoft to acquire the company in 2008.
  • Steve Balmer (CEO at the time) believed that combining with Microsoft could create enough critical mass to challenge Google.
  • He was obviously wrong but rebuffing this deal was turning down by far the best offer that Yahoo shareholders were ever going to get.
  • Third, Mobile, Marissa Meyer, a very highly rated Google executive, joined Yahoo as CEO in July 2012 with a very simple mission.
  • This was to take the enormous traction that Yahoo still had in the fixed-line internet and convert it into mobile.
  • The timing was perfect as the shift from fixed to mobile was just beginning in earnest and on RFM’s Digital Life Pie, it had established a very good position by 2013 (see here and here).
  • This was arguably the greatest opportunity that Yahoo had to take its place among the giants, but 4 years of fumbling and dreadful execution led to ignominious failure.
  • For RFM’s full coverage of this sorry affair see here.
  • This ended in the sale of the core business to Verizon for $4.48bn (see here) where Marissa Meyer finally executed for the long-suffering shareholders.
  • The fact that Verizon vastly overpaid for this asset is evidenced by the fact that it wrote down a large part of its media assets just over one year later (see here).
• The sale to Apollo of 90% of all the media assets (of which Yahoo is a part) is a further sign that Verizon has been able to make nothing of these assets as I predicted (see here).
• It has instead decided to focus on being the pusher of the fastest, most reliable, and cheapest mobile data packets available.
• This is not a huge surprise as Verizon’s CEO, Hans Vestberg, was previously the CEO of Ericsson, the global leader in selling the equipment that delivers those packets.
• The big question is of course what does Apollo have that will enable it to succeed where the best and the brightest in Silicon Valley have spectacularly failed over the last 20 years?
• The only asset that Yahoo still has is that 900m users still engage with it on a monthly basis by visiting its website.
• In today’s terms, this could be worth a lot more than the $5 per user that Apollo is paying but it will take superb execution of an ingenious strategy.
• Apollo obviously believes that it is in possession of both of these and one avenue it intends to pursue is around sports where Apollo already has big positions in sports betting.
• Outside of this, Apollo has not really demonstrated how it intends to succeed where everyone else has failed.
• However, as the 90% shareholder, its incentives for success are far greater than any manager that has gone before it.
• I think it is a long shot, but high-risk and high reward is the nature of private equity.
• If successful, this will be one of the best turnarounds I have seen, and I will follow progress with interest.