Yahoo (YHOO: Charts, News, Offers), once one of the world’s hottest web properties, is now widely forecast to completely become irrelevant in the coming age of cloud based computing and the complete integration of mobile, personal computers and the Internet in a universe dominated by Google (GOOG: Charts, News, Offers), Apple (AAPL: Charts, News, Offers) and, to a lesser extent, Microsoft (MSFT: Charts, News, Offers). The company’s second quarter revenue grew a mere 2%, and the company has continued to downsize and shed the many arms of its portal in a futile effort to stay afloat. In hindsight, the company would have been much better off accepting Microsoft’s 2008 $45 billion buyout offer, which would have given both companies cost-saving synergies that could have made it a true contender against Google. Unfortunately, after the departure of company founder Jerry Yang in January 2009 and subsequent replacement with the fiery former head of Autodesk, 62-year old Carol Bartz, has caused Yahoo to completely lose direction, treading water as Google takes the Internet out from under it chunk by chunk. Is there any hope left for the company, or is it a terminal short in the making?
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Morale is at an all-time low at Yahoo. After Yahoo Japan, which is 34.9% owned by Yahoo, switched its default search engine to Google, the whole world watched Yahoo’s humiliation unfold and Microsoft’s subsequent petulant protests of monopoly against Google, which ended up with over 90% of the Japanese search market as a result. The company has shed many parts of its portal – selling Yahoo Shopping to PriceGrabber, Yahoo Personals to IAC, HotJobs to Monster, business collaboration suite Zimbra to VMWare (VMW: Charts, News, Offers), and outsourced its core Yahoo Search to Microsoft. It has been an all-out garage sale, a dire, terminal going out of business sale for Yahoo, and the top executives have prepared to bail out. Executive vice president Hilary Schneider, Senior vice president of audience David Ko, media vice president Jimmy Pitaro, editor-in-chief and former vice president Srinija Sriniwasan, and executive vice president Ash Patel have all departed or announced their resignations. This mass insider exodus has prompted much speculation that Yahoo is about to flatline. The only bright spot, or sign of possible growth, in this mess is its $100 million of purchase of Associated Content, which expands its editorial operations.
Yahoo Mail is still the largest e-mail service on the Internet, with twice the number of users as Hotmail, but many of the accounts are now sitting empty and unused. The free Yahoo Mail service has also been criticized for automatically adding ad-links into the user’s inbox messages, an annoyance not found in Gmail or Hotmail, and symptomatic of the company’s cash starvation. In addition, its iOS and Android apps have been widely panned as slow, clunky and lacking many basic features. Bartz has blamed Facebook ,Twitter and instant messaging services for negating the importance of e-mail in everyday communications. In the area of its now-outsourced search engine, once the heart and soul of the company, it owns a 17% sliver of the market, compared to Google’s dominating 65% share. Yahoo’s Asian investments, which include the aforementioned Yahoo Japan, Chinese search portal Alibaba.com (29%) and the Alibaba Group (40%) are more valuable that its core American business, but as the Yahoo Japan news suggests, even this last refuge is slipping away from the besieged company.
It may be easier to be optimistic if the CEO had a clearer vision of the future of her company. Instead, Bartz has been often quoted with generic comments such as, “Yahoo is a company that is very strong in content. It’s moving towards the web of one.” Unfortunately for Yahoo, the “web of one” is coming to fruition, and it will likely be under the banner of Google. Her new hires are not any more useful. Chief product Blake Irving has been quoted as saying an equally generic statement, “Yahoo is a global series of web experiences across a variety of devices that gives people what they want.” It’s too bad for Yahoo that it sold off many of these web experience pieces of its portal, and that the only implementation across a “variety of devices” comes in the form of poorly received mobile apps, which pale in comparison to Google Android’s mobile OS-integrated suite package. Unfortunately, Bartz hasn’t handled pressure in the most tactful fashion. At the TechCrunch Disrupt conference in May, Bartz belittled and cursed at TechCrunch founder Michael Arrington when he criticized Yahoo’s eroding market share. Shareholders clearly aren’t happy with her poor PR image, with one major shareholder claiming, “She swears at everybody, and is flip to everybody. She does that with employers, she does that with shareholders, and she does it to employees. That’s not the way to win hearts and friends.”
The good news for shareholders is that many believe that the Yahoo board won’t renew Bartz’s contract when it runs out in a year and a half, and appoint a proper successor. However, at Yahoo’s current rate of deterioration, there might not be much left to salvage by then. Yahoo needs to cling to Microsoft and hope it can survive long enough to outlast the inevitable storm clouds that are about to gather with Google harnessing the power of the Internet, cloud computing and mobile devices all in a “web of one.”
Other News About YHOO
Yahoo Management Shakeup Not Worrying Investors, Newspaper Partners – Yet – Pressure builds for Yahoo – (YHOO: Charts, News, Offers)
More Execs Are Leaving Yahoo: Where Does That Leave Bartz? – Can Bartz keep this company from sinking?
Other Stocks in the News
Novartis to pay $422.5 million settlement – (NVS: Charts, News, Offers)
Apple Inc. (AAPL) Bringing Legal Fight – Apple brings the fight back to Nokia’s doorstep – (AAPL: Charts, News, Offers), (NOK: Charts, News, Offers)
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
