Back in the 1990s, Yahoo! (NASDAQ:YHOO) was the Facebook of the era. It dominated the Internet, and by the first half of 2000 its market cap was nearly $100 billion. Yahoo seemed destined for greatness.
But since the dot-com bust, the company has been mostly a disappointment. Yahoo allowed Google (NASDAQ:GOOG) to dominate the highly lucrative search market and watched as Facebook conquered social networking. Mobile has gone to Apple (NASDAQ:AAPL) and Google. And oh — then Yahoo rejected a $47.5 billion buyout offer from Microsoft (NASDAQ:MSFT).
Now the company’s market cap is about $19 billion. In fact, when you account for the value of Yahoo’s holdings in Alibaba and its Japanese operations, the core business is worth about zero after subtracting the cash balance.
This week has brought even more disappointment. Dan Loeb, who manages the Third Point hedge fund, has launched a proxy fight. He wants to put himself and three allies on the board.
Then there’s this: Yahoo’s deal to sell its Asian assets has fallen apart. A big problem is that it could be nearly impossible to lower the tax bite on a sale. Let’s face it — the IRS needs to find ways to increase tax revenues, especially as budget deficits remain high.
Without a deal, there will be much less cash for Yahoo to use to pursue its growth strategies, such as acquisitions and new products. As a result, it looks as though the company wants to try to salvage a deal, even though it’s a distraction.
All in all, the company has loyal users and continues to innovate. But its problems go deeper than the product lineup or traffic or financial resources.
What Yahoo needs is a tougher culture — one in which there’s an intense competitive drive. This is certainly the case at Google, which seems to want to destroy Apple. Then there’s Facebook. Consider that the company has decimated Friendster and MySpace.
What competitor has Yahoo destroyed? Ironically, it seems the only companies it has crushed are the ones it has bought!
So for new CEO Scott Thompson, the best strategy may be massive layoffs, which would shock the system. And more importantly, he should put together a set of strategies to aggressively take away share from Google and Facebook. If not, Yahoo will remain a disappointment.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.