By today’s tech standards, Yahoo! Inc. (YHOO) is a dinosaur. Founded in 1994, Yahoo was a dominant force that shaped the early stages of the evolution of the internet.
Over the course of its 21 years, Yahoo has built a massive online ad business, as well as a search engine and suite of successful website properties that currently rank as the third most visited on the internet.
With a billion-or-so monthly visitors and properties such as Tumblr, Flickr and Yahoo Finance, why isn’t Yahoo CEO Marissa Mayer generating enough revenue to pay the bills?
Yahoo Search Can’t Compete
Despite being No. 3 on comScore’s most recent Search Engine Rankings report, Yahoo’s market share in that arena is barely 12%. Meanwhile, Microsoft Corporation’s (MSFT) Bing accounts for about 21%, and Alphabet Inc’s (GOOGL) Google search engine commands a formidable 64% of the market.
So while third place may seem impressive, the popularity of second-place Bing is almost double that of Yahoo, while Google nearly triples it.
According to ABC News, “Raymond James estimates [Yahoo Search] generates 40 percent of the company’s revenue.” Boosting Yahoo stock by increasing that revenue would require taking market share away from Bing and Google, and that’s simply not a plausible outcome.
No Mobile Presence
It’s no secret that the technology marketplace of the future is in mobile. Unfortunately for Yahoo, when the rise of mobile devices was just beginning, management’s attention remained on developing viral products to bolster Yahoo’s profitable advertising business.
However, as The Washington Post put it:
“Display ads do not translate well on small screens, and consumers spend much more time on apps than they do surfing the mobile Web. Yet, with the exception of Yahoo Mail, Yahoo’s mobile apps never became big hits for iPhone or Android users.”
Yahoo mobile apps don’t even rank in the top 50, whereas Google and Facebook Inc (FB) apps account for eight of the most popular in the U.S.
No Social Platform
Even while YHOO stock continued to flounder and fellow tech behemoths shifted focus toward social and consumer interactions, Yahoo management remained on the sidelines and never attempted to build its own social networking product.
In 2013, CEO Marissa Mayer made what appeared to be a promising acquisition, buying microblogging site Tumblr for $1.1 billion. However, aside from wallpapering the site with display ads — where there were formerly no advertisements at all — little was done to capitalize on Tumblr’s budding popularity, and the purchase failed to culminate in Mayer’s estimated 50% bump of Yahoo members.
Other than simply acquiring Tumblr and inserting some display ads, YHOO didn’t make much of an effort to truly develop a social presence. According to The Washington Post, “Yahoo disclosed in a regulatory filing that it may write down all of Tumblr’s value.”
Also in 2013, Yahoo CEO Marissa Mayer chose to shift a significant amount of focus and resources to improving the company’s status as a premier news source. The idea was to hire some high-profile news personalities to create fresh content and report current events, then sell expensive advertising spots in those videos.
Mayer kicked off her plan by hiring Katie Couric as a global news anchor, pulling her away from ABC News with a whopping salary of $6 million per year. Unfortunately, Couric’s mere presence in Yahoo News videos wasn’t enough to pull flocks of her once-loyal viewers away from their televisions, and Mayer’s plan to sell more expensive video ads failed miserably.
It’s also possible that Couric’s fans just couldn’t find her news videos, since YHOO never once promoted her content on the front page of its site. That seems a bit unusual and counter-productive, especially considering how much the company was paying — Couric’s initial salary was $6 million in 2014, raised to $10 million when she re-signed for 2015 — to capitalize on her celebrity status.
No Stable Management
Over the past decade, YHOO has had six CEOs and three board turnovers. For a company struggling to find a profitable niche alongside skyrocketing giants such as Alphabet and Facebook, repeated changes at the top-most levels of the company have been more than just a hindrance for Yahoo stock growth.
Unfortunately for YHOO, the current CEO hasn’t been the game changer everyone hoped for. Instead, Marissa Mayer has wasted countless millions on misdirected projects and maligned resources.
Not only that, but several high-profile executives in key positions have resigned since Mayer’s appointment, including two that she had hand-picked herself. Most of them have, apparently, blamed their resignations on Mayer’s overzealous micromanagement and controlling nature.
That doesn’t bode well for a CEO tasked with pulling a once-dominant technology company out of the gutter and returning Yahoo to profitability.
Bottom Line for Yahoo Stock
Overall, it’s been a crazy two-decade-long roller coaster ride for Yahoo stock holders.
Poor decisions along the way at key moments in the evolution of the technology industry pulled Yahoo in the wrong direction, more than once. And attempts to realign the company’s core strategy resulted in multiple regime changes at the highest levels, none of which proved successful.
For years, Yahoo has been hanging by the proverbial thread, surviving mainly thanks to the sheer number of visitors to its sites (who admittedly visit them more out of habit than a desire for their content). All things considered, it’s no surprise that Yahoo stock is down almost 16% over the past year and is entertaining bids to sell off its assets.
For investors, the future may appear a bit uncertain at this point. But, YHOO shareholders can expect at least a small bump when a buyer is finally announced, and the size of that bump will depend entirely on what suitor is awarded the bid and what assets are being purchased.
Until then — and even afterward — don’t expect anything impressive from Yahoo.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.