In the next week, Yahoo will finally complete the sale of a major portion of its holdings in Chinese Internet company, Alibaba.This will net the company $7–$4.5 billion after taxes.
Originally, Yahoo was going to return that money to its shareholders in the form of some sort of stock buyback or dividend.
But then the board hired Marissa Mayer to be CEO and she put a stop to that.
Yahoo’s stock price would surely benefit in the short term from a buyback or a fat dividend, but what Yahoo needs in the long term is to invest that money in a series of new products that can restore organic growth to the company’s top line.
(Yahoo’s bottom line has been fine for a while now, but only thanks to cost cutting by former CEO Carol Bartz.)
We know that Yahoo’s previous few CEOs would have liked to have pulled a similar move with the Alibaba proceeds, but perhaps none of them had Mayer’s apparent willingness to tell board members and major shareholders to shove off.
So, where will Mayer spend the $4.5 billion?
Currently, Yahoo’s business is based on Web email. People go to Yahoo to check it, and then Yahoo sends that traffic into Web pages that are easier to sell ads against—starting with its homepage, Yahoo.com
One problem with this set up is that Web email is becoming less used by the minute. Older people check their email on their phones now, and teenagers prefer text and social networks to email.
The other problem is that Yahoo’s business is based almost entirely on the desktop Web—not mobile. By the end of the decade, more people will be connecting to the Internet through mobile than they do through the desktop.
So what Yahoo needs is a product—or a series of products—that are central to the way people currently and in the future will use the Web and their mobile devices.
Lots of people assume Mayer will use the $4.5 billion to buy some startups working those kinds of mobile products.
Some obvious ideas include Pinterest, which has 2.5 million daily active users; Spotify, which has 7.5 million daily active users; or Flipboard, which has 1.5 million, according to AppData
Pinterest, which we’ve heard recently rejected a $2 billion+ buyout offer, might be out of Mayer’s price range. Spotify isn’t, but CEO Daniel Ek is said to be focused on remaining independent.
Flipboard could be a safer bet. Flipboard’s Mike McCue is plenty comfortable selling companies, having sold Tellme to Microsoft for a few hundred million dollars. Flipboard, essentially a portal for mobile, is also a pretty natural extension of what Yahoo does on the desktop.
A Yahoo executive tells us that Mayer is also particularly enthusiastic about Yahoo Finance and Yahoo Sports, two of the company’s bigger winners on the Web. Perhaps she will invest the money in making the mobile experiences better for those two brands.
The other thing Mayer might do is take the $4.5 billion and invest a huge portion of it into Yahoo’s ad tech, perhaps by acquiring a company like PubMatic or AppNexus. This wouldn’t help Yahoo attract any new consumers to its products, but it would help the company sell its current advertising inventory for higher prices. Just last week, Mayer bet a billion dollars or so on that side of Yahoo’s business.
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