Yahoo – Surface deep

Reply to this post

There is no sign of Yahoo ever fulfilling its potential.

• A scratch appears to be the limit of Yahoo’s ability to realise its potential.
• Marissa Mayer has been quick to jump to Yahoo’s defense following the negative commentary earlier this week, but her comments clearly reveal the fundamental problem at Yahoo.
• I think that highlighting that Yahoo has only scratched the surface of its potential is a tacit admission that Yahoo has yet to execute on the opportunity in front of it.
• This, in a nutshell, is at the root of Yahoo’s current malaise as I have long believed that Yahoo already has all of the assets it needs to execute a decent turnaround.
• In RFM’s most recent research report (see here), Yahoo has been assessed based on what revenues it could generate if it were able to execute on its assets.
• Yahoo already has assets that cover 75% of the Digital Life pie and it also claims to have 600m monthly active users on mobile.
• If I assume that Yahoo had executed on its assets such that a thriving ecosystem had been created on mobile devices, then it should have generated US3,923m in revenues from mobile devices.
• Instead it generated just $271m in revenues from mobile missing out on 93% of the revenue opportunity open to it.
• Most worrying of all is that management was happy with this figure strongly indicating that it has not realised the scale of the opportunity that it is missing out on.
• There are a number of reasons for this underperformance:
  • Firstly, although Yahoo has the coverage of the Digital Life pie, most of the assets remain predominantly in the fixed internet.
  • Secondly, acquired companies have not been integrated into Yahoo but have instead have been pretty much left to their own devices.
  • Thirdly, ongoing turmoil where strategy seems to change on a weekly basis, has meant that these problems have been shoved to low priority.
  • Fourthly, Yahoo no longer has the management strength to carry out this transition.
• The net result is a company that is limping from one quarter to the next and a management team that spends all of its time working out whether to spin or sell its core assets.
• Yahoo’s core business is attributed negative value by the market which I think is very far from reality as it is profitable and does generate cash.
• However, the way that things are going, it looks very much as if plenty more value destruction is to come in 2016.
• My hearts wants to get involved but my head sees all the hallmarks of a classic value trap.