On Monday morning, Eric Jackson, the manager of hedge fund SpringOwl, sent a brutal 99-page presentation to Yahoo’s board, outlining his case for why Yahoo should drop Marissa Mayer as CEO and find new management.
Jackson points out that Yahoo has burned through $3 billion on M&A in the past three years since Mayer took the reins, which contributes to $10 billion in what Jackson calls Yahoo’s misallocated capital.
The value of all of those startups Yahoo has acquired, Jackson says, is worth nothing at Yahoo’s current stock price.
Jackson also points out that Yahoo has a history of buying up startups run by former Google APM members. While at Google, Mayer started the company’s elite associate product manager program. Of the 49 acquisitions Yahoo has made under Mayer’s leadership, 6 were startups founded by ex-Googlers. The total cost of these six acquisitions is $319 million, according to Jackson’s slide deck.
Here are all of those acquisitions (the acquired startups founded by former Googlers are circled in red):
Under Mayer’s leadership, Yahoo made a reputation for itself by acquiring tons of startups. When she started, Mayer said that one way she intended to restock the company with talented engineers was through small acquisitions. These transactions are often called aqui-hires, and they are often a nice way for a failed company to have an amenable end.
Yahoo bought Polyvore in July for $230 million. Polyvore, a social commerce site that lets users make artistic collages of clothes and accessories, was founded by three Yahoo alums, including Jess Lee, whose relationship with Mayer dates back to Lee’s days as a Google APM more than a decade ago.
At the time of the acquisition, Yahoo said it bought Polyvore because of the “amazing potential” of the combination of Yahoo’s premium content and the startup’s expertise in community-driven experiences and retailer-supported commerce.
But Jackson does not mince words when it comes to Yahoo’s decision to spend shareholder money acquiring Polyvore and companies like it.
“It’s not acceptable to pay $230M for zombie companies run by former APM members,” he says, pointing out that Polyvore had raised $22 million in VC funding, was eight years old and had gone through multiple pivots. For all intents and purposes, it looked like a goner until Yahoo bought it.
According to Jackson’s presentation, Mayer pushed for the Polyvore deal at $30 million despite SpringOwl’s belief that there’s no justification for the valuation. He also says anonymous sources have told his firm that besides Mayer, no Yahoo employees wanted to do the Polyvore deal through Yahoo’s “deal review” process.
In Jackson’s view, Yahoo’s core business is badly in need of a turnaround, but it’s still undervalued after being poorly managed by Mayer. Selling today would mean selling it at a low point. He thinks selling Yahoo right now would only enrich some private-equity people while current shareholders would miss out on upside.
Here is a complete list of all the startups Yahoo has acquired with Mayer at the helm: