After taking a beating from loud, critical shareholders, Yahoo CEO Marissa Mayer used last night’s earnings call to offer up a spirited defence of her decisions as CEO.
In her prepared remarks, Mayer addressed, almost on a point-by-point basis, criticisms of her performance.
The most important things she said:
- Yahoo has “ the best tax experts in the country working intensively on structures to maximise the value to our shareholders of our remaining stake in Alibaba.” This is important because Yahoo could lose money selling its stake in Alibaba. Ben Schachter at Macquarie Research said in a note this morning, “Given the current value of the Asia assets, for every one point in tax rate reduction, the company would save ~$US425mm. If the company can spin the assets tax free, it would drive >$US15 per share in value.”
- Yahoo has spent $US7.7 billion to buy back shares. That’s 24% of the company. And it’s well above what Yahoo said it would do.
- Yahoo has only spent $US1.6 billion on acquisitions since she took over. Of that, $US1.3 billion, or 80%, was on two companies — Tumblr, which was $US1.1 billion, and $US200 million on Flurry. The vast majority of Yahoo’s money is going to buybacks, not acquisitions.
- Tumblr’s revenue is growing, and it is on pace to do $US100 million in revenue next year. It will also be EBITDA positive.
- The native advertising business, which is brand new, is on a $US250 million run rate.
- Gross revenue from mobile advertising will be $US1.2 billion this year.
- She also said, “ we have had nearly 2,000 performance related departures in the company.” Yahoo has been accused of being too bloated, so this is her way of saying the company has slimmed a bit.
Schachter said of the call, “Yahoo had a good earnings presentation. The tone and content were both much improved over previous conference calls.”
It’s been a rough quarter for Mayer. For her first two years as CEO, Mayer got the benefit of the doubt on every decision. The stock went up, and shareholders were happy.
But this year, the stock has been flat. And her performance is being watched more closely.
At the end of August, Eric Jackson, one the loudest Yahoo shareholders flipped on Mayer. After supporting her for years, he turned. While Jackson isn’t the largest shareholder, he manages to have an outsized impact through his writing and TV appearances. He was unhappy with Mayer’s acquisition strategy, growing headcount at Yahoo, and her bad hiring of Henrique De Castro as COO.
Then, at the end of the September activist shareholder group Starboard group launched an assault on Mayer and Yahoo. In a letter to the company, it made the following demands:
- Unlocking the substantial value from Yahoo’s non-core minority equity stakes in Alibaba Group Holding Limited (“Alibaba”) and Yahoo Japan in a structure that delivers value directly to Yahoo shareholders in a tax-efficient manner;
- Realising substantial cost efficiencies by reducing expenses throughout the Company, specifically with a goal of reducing losses in the Display business by between $US250 and $US500 million;
- Halting Yahoo’s aggressive acquisition strategy which has resulted in $US1.3 billion of capital spent since Q2 2012 while consolidated revenues have remained stagnant and EBITDA has materially decreased; and
- Exploring a strategic combination with AOL, Inc. — a company we know well — which could improve Yahoo’s competitive position, deliver cost synergies of up to $US1 billion, and potentially facilitate the realisation of value from Yahoo’s non-core equity stakes with minimal tax leakage.
Starboard doesn’t have a massive stake in Yahoo, but many other shareholders agree with all of these points.
This puts Mayer on the defensive, which is why she came out swinging during the company’s earnings call. She essentially addressed all of Starboard’s gripes during the call. We doubt this will be enough to sate people. But, it’s a start.