Mayer’s Yahoo: A “Global Tech Company?”

by Jonathan Berr | March 12, 2013 10:00 am

I think of Yahoo‘s (NASDAQ:YHOO[1]) declaration that it’s officially a “global technology company” with the same skepticism people might have if I declared that I wanted to be an astronaut.

Sure, I can become an astronaut in theory … however, my total lack of qualifications and my inability to master high school physics probably hinder my chances of becoming a real-life Buzz Light Year. The same hold true for Yahoo, considering its dependence on advertising.

Though CEO Marissa Mayer has won respect for breathing new life into the moribund Sunnyvale, Calif. company, one problem that she hasn’t been able to rectify is its eroding display advertising business. It’s a problem that’s vexed the company for at least a decade and is only going to get worse.

Earnings from the business fell 3% to $591 million in the last quarter, even as digital advertising spending grew. Even more depressing is the fact that Yahoo accounted for 8% of digital display revenue last year, down from 16% in 2009, according to The New York Times[2].

Not the First Time

On top of that, Yahoo’s previous efforts to become more of a technology company over the years don’t inspire much confidence. Take a look at its history:

• In 1999, the company spent $3.7 billion on Mark Cuban’s Broadcast.com to tap into the then burgeoning Internet radio market. Since then, new players such as Sirius (NASDAQ:SIRI[3]), Spotifty and Pandora (NYSE:P[4]) have emerged.
• That same year, Yahoo acquired GeoCities for $3.6 billion, which it shut down 10 years later.
• The company acquired Overture in $1.3 billion in 2003 to attempt to gain an edge over Google (NASDAQ:GOOG[5]) in the then exploding business of search advertising.
• In 2010, it formed a search alliance with Microsoft (NASDAQ:MSFT[6]) … which Mayer recently said is underperforming, leading to speculation she could turn to former-employer Google and Yahoo rival instead.
• In 2005, it acquired the photo-sharing site Flickr, which has since been eclipsed by Facebook‘s (NASDAQ:FB[7]) Instagram.

Now, the company — whose shares have soared since Mayer became CEO[8] — is trying yet again to transform itself into a tech player through acquisitions. It’s unclear what the company has in mind. When Mayer first took over the position last year, The Wall Street Journal[9] noted that Mayer was looking at small deals in the “low hundreds of millions.”

Fast forward a few months and supposedly Jackie Reses, the company’s head of M&A, told employees that two “significant” deals and six smaller ones were in the works, according to AllThingsD[10]. A Yahoo spokeswoman declined to comment for this story.

Results Are What Matter

Really, though, whether Yahoo is a technology company or media company doesn’t matter.

Mayer has had a long honeymoon with Wall Street since she became the latest CEO of the once-formidable Internet giant last year. (She didn’t end up looking bad even after her decision to forbid people from telecommuting[11], as it turns out that many Yahoo employees were hiding out, in a sense, at their home offices. Some even began start-ups while theoretically working for Yahoo.)

Plus, her efforts to improve Yahoo’s email service, redesign Flickr and improve the company’s search business have impressed Wall Street analysts.

But then again, Yahoo had been down so long that it had nowhere to go but up.

Now that Mayer has plucked most of the low-hanging fruit, she will be expected to generate real and lasting growth — whether as a tech name or otherwise.

In the end, titles don’t matter. Results do.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2013/03/mayers-yahoo-a-global-tech-company/

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