by Jonathan Berr | May 21, 2012 10:53 am
Yahoo‘s (NASDAQ:YHOO) decision to sell half of its 40% stake in Alibaba Group Holding Ltd. for about $7 billion is analogous to someone selling the family silver to pay the mortgage.
Although YHOO shares are trading up in early trading on the news, investors should not be fooled. For one thing, the Alibaba deal should have been done years ago before China’s economic growth slowed and caused the value of the country’s largest e-commerce company to drop. Moreover, it really does nothing to address Yahoo’s main problem, which is a lack of a coherent strategy.
Yahoo’s issue, as I have argued many times before, is that it tries to be all things to all people. Were it being developed today, there is no way any venture capitalist would back a site that provides fantasy baseball, stock quotes and reviews of local businesses, because the business model makes no sense. To quote another cliché, Yahoo is a jack of all trades and a master of none. Unfortunately for shareholders, this is a problem money can’t solve.
Yahoo’s interim CEO Ross Levinsohn, whose claim to fame was that he helped steer News Corp (NASDAQ:NWSA) into the disastrous MySpace acquisition, has to answer the question of what’s next for Yahoo. The stake in Alibaba is worth more than Yahoo’s core business in the United States, according to The New York Times. Yahoo intends to use the Alibaba windfall to repurchase shares and has increased its buyback authorization by $5 billion.
Remember: Shareholders chase buybacks like kittens batting around a tinfoil ball — furiously at first, but the excitement wears off pretty quickly.
Maybe Levinsohn will take a page from AOL (NYSE:AOL) and unload some intellectual property. But as cash-strapped homeowners are well aware, there are only a limited number of assets to be sold. A better idea, though, would be for Levinsohn to try to merge the two Internet companies together. As I wrote last week, the case for the companies to join forces is stronger than ever because their strengths and weaknesses are pretty complimentary.
Should this merger ever happen, AOL CEO Tim Armstrong would be the better choice to run the company because he made some progress in turning around the New York-based Internet publisher, though he continues to face his share of problems. Although such a deal would attract antitrust scrutiny, I believe it would pass legal muster given the strength of rivals such as Facebook (NASDAQ:FB) and Groupon (NASDAQ:GRPN).
One thing Yahoo can’t afford to do is sit back and do nothing while its business continues to erode. It has to define itself. These days, Yahoo is so vague that the company should change its official corporate color from purple to beige and make the question mark its preferred punctuation mark instead of the exclamation point. Even its corporate philosophy is all talk and no action, speaking about how it “creates deeply personal digital experiences that keep more than half a billion people connected to what matters most to them, across devices and around the globe.”
Exactly what the company means by a “deeply personal digital experience” is tough to say, but whatever it means, people seem less interested in it than they were before.
Yahoo, which dominated the Web in the 1990s, lost its spot to Facebook as the world’s most popular website in 2010, and it seems unlikely it will ever recapture the title. Two years earlier, Yahoo made one of the dumbest decisions in the history of corporate America when it turned down Microsoft‘s (NASDAQ:MSFT) $44.6 billion takeover offer. Yahoo has not been the same since then. In fact, Facebook widened its lead over Yahoo in the display advertising market in 2011 and probably will increase it again in 2012, notwithstanding the decision of General Motors (NYSE:GM), a high-profile advertiser, to pull ads from the site.
Until the dust settles, there is absolutely no reason for investors to own Yahoo.
Jonathan Berr is a former AOL contract writer. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter@jdberr.
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