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Social Media Screwups Illustrate Why Yahoo Is Doomed

It botched a Facebook deal and is wringing Flickr dry

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Lessons for Investors — and CEOs

If you care about the culture clash and the squandering of creativity, Mat Honan does a great job encapsulating Flickr’s failures on Gizmodo here. But if you’re an investor wondering what the touchy-feely overtures of creative Silicon Valley types mean to you, here is what Yahoo’s handling of Flickr tells us about the company — and about other struggling tech and media giants of the same mind-set:

  • Like many uncreative tech companies — I’m talking about you, Hewlett-Packard (NYSE:HPQ) — Yahoo is a serial acquirer. It throws around money to buy other people’s good ideas because it has none itself. Flickr was one of 10 buys in 2005.
  • When Yahoo buys an idea with potential, it frequently warps the smaller company’s mission to meet its legacy business and maximize profits.
  • The new and fresh ideas eventually get mired in the old makeup of things.
  • Although some users might stick around, Yahoo ultimately winds up alienating new customers and turning off old loyalists until there’s nothing left.

I am not advocating creativity trump profits, especially for a publicly traded stock. Every business needs to make money. However, there is something to be said for allowing the fruit to ripen on the vine before you squeeze all the juice out of it.

Consider that among the 10 companies bought in 2005 with Flickr, Yahoo snapped up Delicious (formerly, a social bookmarking site, and Upcoming, a social calendar. In 2006 it bought, a social network for artists who want to show off their singing or dancing or writing skills.

All fertile ground for social media, don’t you think? But none of these efforts ever went anywhere and instead just became meat for the corporate grinder.

And consider Yahoo’s squashed deal for Facebook because earnings started to fade and it didn’t want to upset the balance sheet.

In short, Yahoo was too concerned with living quarter to quarter and making flashy headlines via buyouts. As a result, it abdicated its long-term strategy and has been falling slowly but hopelessly behind for the last seven years.

In 2005, YHOO stock peaked over $40 a share. Now it’s trading for the mid-$15s.

Revenue is at the lowest level since 2004.

The company is “growing” by laying off employees and selling off ownership stakes.

Enough said.

Who’s to say whether Facebook would have been the savior of Yahoo? But frankly, that’s not the point. The lesson here is that squinting at the quarterly results means you lose sight of the big picture, and squeezing extra profits from fledgling startups at the cost of creativity can be bad for the business in the long term.

As Yahoo continues to flail about looking for quick fixes or short-term boosts to the bottom line, investors should keep this culture in mind — both as a sign to avoid YHOO stock specifically and as an example of the kind of business you should not be putting in your portfolio — at any price.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves owned a position in AAPL but none of the other stocks mentioned here.

Article printed from InvestorPlace Media,

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