Technology can be an evil witch. Take the case of Yahoo. Once up a nanosecond, Yahoo was all the darling of Wall Street hedge funds. Venture Capitalists loved to tout the fact that they invested in Yahoo at a single digit cost. That was back in the 1990’s just as the dotcom bubble was getting going.
That was then. Yahoo was the undisputed leader; they were early in Search, Yahoo Mail and Chat. The future seemed limitless. Everybody wanted a piece of the company.
Back then, it didn’t matter much that Yahoo had very few ways of monetizing its business. Advertising was the main source. But, with the exception of banner ads, there wasn’t much going on.
Only a tiny slice of retail sales were done online. YouTube was an infant. Google was nowhere. Everything was a promise wrapped in a slow speed dial up Internet connection.
Investors valued companies like Yahoo based on the number of programmers employed that could create the network infrastructure that some day would translate into piles of cash earnings. Every programmer body counted. It didn’t matter if you were any good, there was a job waiting in Silicon Valley.
Yahoo managed to hire their share of tech geeks. Paul Graham, an early company executive, however, claims the company never bothered to seek the best and the brightest of the hack culture. Yahoo wound up with a techno house of cards.
Identity Crisis Comes Early To Yahoo
According to former insiders, it was those annoying but lucrative banner ads that made Yahoo founder Jerry Yang think like a digital media company turning his back on the far greater potential of the Search business.
Management simply blew this call big time. It seems too many people got rich fat and happy on the passing craze for banner advertising. Technology can be an evil witch.
Now after nearly a year of waiting Yahoo becomes part of giant Verizon in a new media entity named Oath. Verizon seems to like fallen angels, having already acquired former tech star AOL several years back.
But, if the best minds in software were not attracted to Yahoo, what will be the attraction of a giant corporation like Verizon?
After The Deal Closes: Look What’s Left
Verizon is paying $4.8 billion for the US digital assets of Yahoo. But this is a peanut when you consider Yahoo revenues are about $5 billion. Now instead of racing to hire more programming geeks, about 2,000 Yahoo employees will be cut.
The public market value of Yahoo stock is just over $51 billion. This figure includes about $35 billion worth of stock in the Asian Internet Company Alibaba and nearly $10 billion in value of Yahoo Japan. The public will retain ownership of these businesses.
The value of Yahoo’s investment in Alibaba and Yahoo Japan can be easily determined since both companies are publically traded: Alibaba Group Holding Ltd. (BABA.N) and Yahoo Japan Corp (4689.T)
The performance of these two investments alone have made, Yahoo shareholders a winner. Over the past year the stock has increased in value nearly 45%. Yahoo US looses money and has suffered embarrassing headline making hacks to its system.
Both of these entities have been far more successful than Yahoo US. For example,
Alibaba has been growing big time. Company officials place the 2017 growth range between 45%-49%. The real prize is what is being left behind: Alibaba and Yahoo Japan.
Which Would You Want to Own
Once the Verizon acquisition of Yahoo’s US digital assets is completed, the remaining company Yahoo will be renamed Alibaba Holdings. If you were an investor would you rather own slow growing predictable Verizon or a dynamic duo of Alibaba and Yahoo Japan?
Time will tell just how successful Verizon will be in turning around the fortunes of Yahoo. It is doubtful they will change the programming culture inherited from Yahoo needed to bring Oath into the 21st Century.
The move will succeed in adding to Verizon’s digital advertising reach but the days are gone when Yahoo was the high growth darling that sizzled in the entrepreneurial days of the Internet.