Yang Leaves Yahoo (YHOO), But Prospects Remain Dim
PUBLISHED ON: Jan 19, 2012
This week, Jerry Yang resigned from Yahoo's (YHOO: Charts, News) board of directors and cut all ties with the current management of the company he co-founded in 1995. Yang also resigned from the boards of the Alibaba Group and Yahoo Japan, but still owns 46.6 million shares, or 3.8% of outstanding shares.
To counter this series of disasters, former CEO Carol Bartz attempted to keep the company afloat by shuttering and auctioning off Yahoo's assets bit by bit, until only its core portal and Asian assets remained. Nowadays, Yahoo shareholders have given up on any hopes for recovery in a world dominated by the likes of Google (GOOG: Charts, News) and its Chinese counterpart Baidu (BIDU: Charts, News). Instead, shareholders are merely hoping for a takeover which would give them an acquisition premium, leading to a more attractive exit price. Members of Yahoo's old guard - Bartz, Yang and Bostock - had been seen as impediments to change who were opposed to a sale of its remaining assets. Large shareholders are hoping that the company would either sell its Asian assets, which are worth more than $10 billion, or find a buyer that would take over the entire company. Bartz's conflicts with Alibaba CEO Jack Ma froze all negotiations of its Asian assets, while Yang, on more favorable terms, was still unable to barter a favorable deal. Large shareholders, such as Yahoo institutional investor Third Point LLC, have criticized Bartz and Yang. Third Point CEO Daniel Loeb stated that "the board's inability, or perhaps unwillingness to properly solicit true strategic alternative bids - let alone to negotiate them," was extremely problematic.
Current CEO Scott Thompson hasn't ruled out selling the company to maximize shareholder value, nor has he thrown down the towel. Analysts believe that Yang's departure will give Thompson freer rein to split or merge the company's assets to his liking. In addition, they also believe that Thompson, the former chief technology officer and president of eBay's (EBAY: Charts, News) PayPal, may be better suited to address the Web 2.0 threats of Facebook, Google and Twitter. In a speech to investors, Thompson stated that Yahoo's massive data assets would be "exploitable for next-generation products and in other spaces in advertising and marketing." PayPal has been massively successful in the mobile arena and one of the main revenue generators for eBay, which bodes well for Yahoo's future in weaving together its regular and mobile Internet platforms.
If Yahoo chooses to stay and fight Google, Facebook and Baidu, it has a long uphill battle ahead. After being founded by Jerry Yang and his Stanford classmate David Filo in 1995, Yahoo became the world's most popular website with a market cap exceeding $100 billion at its peak. After the dot-com crash, however, its fledgling rival Google stepped up and dethroned Yahoo, a blow from which the company never recovered. The shift toward social networking, fueled by Facebook and Twitter, further contributed to the company's downfall.
Shares of Yahoo have vastly underperformed its industry peers and the market. Shares have declined 8.2% over the past twelve months, while Google has remained unchanged. Yahoo stock currently trades at 18 times forward earnings, a respectable multiple for a tech stock, but unless Thompson can mount a convincing offensive or attract a buyer anytime soon, shares may be overvalued.
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