Yahoo CEO Marissa Mayer is often criticised for doling out roughly $3 billion on a series of acquisitions that failed to produce any meaningful improvement to the company’s business.
And according to a new analysis by FBR Capital, the value of those assets is now significantly below what Yahoo paid.
The four biggest deals done on Mayer’s watch are all worth less than the acquisition price, according to FBR.
Tumblr, which Yahoo acquired for $1.1 billion in 2013, is currently worth $770 million in a best case scenario, FBR estimates.
Brigthroll, Flurry and Polyvore are also worth less the acquisition price, the firm estimates.
And that’s the good news. FBR assigns zero value to the other 40-something startups Yahoo bought in the past 3 years.
Still, FBR believes the value of the four big acquired assets could help provide a payoff to shareholders if Yahoo was broken up and its various pieces sold.
In a note published Monday, FBR’s William Bird wrote that the Yahoo Display segment, which includes Yahoo News, Finance, and Sports, as well as most of the startups it bought over the past 3 years, could derive a valuation over $3.2 billion if sold separately.
The right owner
Of that $3.2 billion, Bird pegged a base case valuation of over $1.4 billion to the four startups he included in the report.
For Tumblr, Bird pointed out its operational and financial performance might lag behind its competitors, but it’s still grown its members and continues to have a loyal user base that’s spending over 10 minutes per day on the site. He also noted that BrightRoll, which Yahoo bought for $640 million, generated over $100 million in revenue, while Flurry and Polyvore are in a growing field.
“We believe Tumblr could be extremely valuable in the hands of the right owner who could deliver best-in-class product innovation and audience targeting,” the note said. “We do not ascribe any value to the other acquisitions YHOO has made in the Marissa Mayer era, which together add up to several hundred million dollars.”
The note stressed that a break up of properties could draw a higher number of bidders because there’s not many companies capable of spending billions of dollars on Yahoo as a whole. Also, it could measure the more accurate number of visitors to Yahoo’s properties, because some services like comScore count a single visit to Yahoo as one visit, regardless if the user goes to other Yahoo sites.
FBR’s note is certainly an interesting idea, when some shareholders have been giving almost zero value to the startups Mayer bought during her 3-year tenure.
Eric Jackson, the fund manager who recently sent a 99-page presentation deck to Yahoo, suggested writing off the entire $3 billion M&A cost, and that it should stop splurging on acquiring startups that don’t bring in any immediate value to the company.
“Big brands and flashy acquisitions won’t save Yahoo,” Jackson wrote. “Yahoo must save Yahoo.”