Yahoo (YHOO): Pass the Prozac and Jack Daniels, Please*

We promise: Later today, we’re going to get back on the horse, look to the future, and solicit your help in getting this once-great company cranking again (And we have!). But right now, as we recall last night’s dreary conference call–during which Jerry sounded out of touch, Sue sounded beaten, and we felt the last vestiges of hope trickling away–we feel compelled to wallow in the slow-motion train wreck of the past decade.

1995-1997: Yahoo on top of the world: Triple-digit revenue and profit growth, dominant global brand, a vast lead in the most value Internet business…search.

1998-2000: Awesome growth and financial performance on the strength of that core search business rockets the company to a $100 billion + market cap. Alas, in these years, the seeds of doom: A colossal strategic error, as Yahoo decides to de-emphasise search in favour of becoming a “media company.”  Door opens for a tiny start-up called Google.

2001-2003: Bust–and then, thankfully, recovery. Alas, in the hands of Hollywood veteran Terry Semel, the company lurches even more aggressively down the entertainment-and-media company path. Google storms up the search charts and soon discovers the best advertising business in the history of man: PPC.

2004-2005: Beginning to realise its mistake, a startled Yahoo finally re-emphasises search–only to soon find itself in distant second place.  Never mind, says Terry–we have the better model! In Q4 2005, Yahoo hits its post-recovery peak, with all businesses firing on most cylinders. Terry sells hundreds of millions of dollars of stock and proudly tells the world:

I am very proud of the remarkable growth in progress Yahoo has demonstrated throughout this past year. We relentlessly focused on the expanding needs of our consumers and increased the rate of innovation and product development. This in turn translated into great financial results for our company and we’ve accomplished all this while also continuing to pursue emerging opportunities that we believe will help sustain our long-term competitive advantages.

Yahoo reported revenue of $1.5 billion for the quarter, or 11 straight quarter record revenues and up 39%… Operating income before depreciation and amortization in Q4 was $459 million and $1.6 billion for the full year of ’05, up over 50%… Our results demonstrate the power of our great business model…

The stock peaks around $45. But meanwhile, under the hood, tech talent is jumping ship, the company is losing focus, the strategic errors are beginning to be revealed, revenue is decelerating, and the search game has been lost for good.

2006: Revenue continues to decelerate. Margins peak. Google zooms so far into the search lead that Yahoo is forced to admit it will have to settle for second place. The new search mantra becomes “we’ll stop losing share.” The company fails this modest goal. Terry sees only success and seems so complacent that it sounds as though he’s delivering quarterly conference calls from a Barcalounger. The stock begins to tank.

2007: After five straight quarters of disappointment, even Terry stops saying everything is fabulous. Shareholders are up in arms. Terry departs. Jerry takes over, unfortunately suggesting that he’s hard at work on a 100-day plan. Broadband partners AT&T and Rogers demand renegotiation of deals. Revenue continues to decelerate. Valuable employees stream out the door. At last…in Q3, with the stock in the mid-$20s, 7 quarters after the start of this latest  malaise…hope. The core businesses are re-accelerating. Jerry unveils a modest but intelligent “start page” strategy. The future looks, well, OK.

2008: A tepid quarter, mass firings, and a disastrous outlook. Despite the cost cuts, profits are expected to plunge. A company that only two years earlier was growing free cash flow 50%+ now reveals its hope that, after another year of restructuring and investment, cash flow growth can eventually climb back to levels that would embarrass a cable company. Stock hits $18. Yahoo’s once-amazing franchise is valued at less than 2-times revenue. 

Pass the Prozac, please.

UPDATE: OK, it’s eight hours later, and we’ve recovered. Time to save Yahoo!  Please submit your suggestions here.

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