Yahoo – Fair fee.

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I don’t begrudge Marissa her 5% payoff.

• While it appears that Marissa Mayer is being paid $200m for years of failure, I think that she has recently enriched shareholders of Yahoo by over $4bn making a 5% pay off not as unreasonable as it looks.
• Marissa Mayer’s tenure at Yahoo has been a huge disappointment.
• While I have long believed that she got the strategy right in terms of increasing coverage of Digital Life (see here) but completely failed to execute when it came to moving its engagement from fixed to mobile (see here).
• This led to Yahoo fulfilling only a tiny fraction of its potential in mobile and massively underperforming its competitors Google, Facebook and even Twitter.
• This resulted in the company going nowhere, executive turnover and poor financial performance.
• It was against this backdrop that Verizon entered the scene and it is here where Marissa has finally shone.
• I think that it is quite easy to argue that the core business is worth nothing as:
  • First: A total of 1.5bn login credentials have been stolen in two of the largest hacks in history.
  • This is more users than Yahoo has in total meaning that some of its users have suffered the indignity twice.
  • I think that this gives its users the perfect excuse to shut down their Yahoo accounts and move elsewhere.
  • This is already showing up in the company’s financial statements where real revenues (after the traffic acquisition costs) continued to decline 3% YoY in Q1 2017 and the business remains loss making on a GAAP basis.
  • Yahoo’s core business is a declining fixed Internet asset that becomes less relevant with every passing quarter.
  • Second: The two huge hacks set up the possibility of a huge legal liability should the users of Yahoo choose to sue for compensation from any losses that they have incurred.
  • Third: The outlook for Verizon to make something valuable out of Yahoo is extremely poor indeed.
  • I very much doubt that Verizon has the management bench strength to succeed where Yahoo has failed, and as a result, I think that this asset will experience a gentle decline into oblivion inside Verizon.
• Against this backdrop, Marissa has managed:
  • First to get Verizon to pay $4.48bn for this asset
  • Second to prevent a huge haircut to the price being made when details of the hacks came to light
  • Third: to get Verizon to shoulder half of the potential legal liability when I would argue that Yahoo should shoulder all of it.
• Consequently, I think that after years of failure and disappointment, Marissa has come good at last.
• Her dealings in Verizon have arguably enriched shareholders by over $4bn and reduced potential liabilities by an incalculable amount.
• All in, it looks like she has made around $200m from her time at Yahoo which amounts to around 5% of what she has finally delivered.
• It is arguable that the opportunity forgone as a result of her bad execution is many orders magnitude greater than $4bn but I see this as a sunk cost given the poor performance of the share price.
• Hence, I see the value she has delivered as a parting gift for her long-suffering shareholders and do not really begrudge her the 5% she is being paid.
• With the share price now not far from my valuation of $50.4, there is no reason to involved any longer.