Thursday, 4 February 2016

Yahoo! is officially for sale as it lays off 1,700 workers

Yahoo is one of the best-known brands on the internet, but its core internet business is in a grim situation. How grim? There's a debate over whether the company itself — what most of us think of when we think of Yahoo — is actually worth less than zero dollars.


Back in 2005, Yahoo invested $1 billion in one of China's hottest technology startups, Alibaba, getting a roughly 40 percent stake. The bet has paid off handsomely. In 2012, Yahoo sold part of its stake back to Alibaba for $7.6 billion. Since then, Alibaba has continued to grow rapidly, and Yahoo's remaining stake is now worth around $25 billion.
That number is remarkable because Yahoo as a whole isn't worth much more than that. Indeed, if you subtract the value of all of Yahoo's major assets — including a multibillion-dollar stake in Yahoo Japan (an independent subsidiary in which Yahoo is a minority shareholder) and a few billion dollars in cash — from its market value, you get a big negative number. "If you just solve for the missing number, you are forced to conclude that Yahoo's actual core business of being Yahoo (and Tumblr and whatever) is worth negative $13 billion," as Bloomberg's Matt Levine put it in December.
I don't think that's true, for reasons I'll get into shortly. But it's created a secondary crisis for the company — and a deep distraction for its CEO, Marissa Mayer.
In 2012, Yahoo's board hired Mayer, then one of Google's best-known executives, to turn the company around. Nearly four years later, it's becoming clear that her turnaround effort is failing. Mayer has invested lavishly in both engineering and media talent, but there's no sign that these investments are paying off in the form of higher revenue.
And over the past year, Mayer's management of Yahoo the business has been overshadowed by an argument over whether Yahoo can distribute its Alibaba holdings to shareholders without paying billions of dollars in taxes on them.
Things came to a head on Tuesday, when Yahoo released its quarterly financial results along with a new turnaround plan. Yahoo announced that it was laying off 1,700 workers and focusing on its most successful products — including its search engine and popular email service. But in the same press release, the chairman of Yahoo's board announced that the board is going to "engage on qualified strategic proposals" — that is, consider offers to sell the company.
It's a humiliating announcement for Mayer, because it clearly signals that the board is losing patience with her turnaround efforts. And the looming possibility of a sale is going to make it all the more difficult for her to motivate Yahoo's remaining staff to work hard on her latest turnaround plan.