More dismal results from Yahoo! as CEO Mayer insists she's on board with a sale

It’s clearly to be assumed that any of the putative bidders for Yahoo! are only too aware of the challenge they’re buying into. But just in case any of them needed reminding, yesterday’s financial results should leave them in no doubt.

CEO Marissa Mayer was of course talking about turnaround strategies and the “very active, good start” to the current fiscal year, but the hard numbers tell a different tale:

• Profit plummeted from $21.2 million for the first quarter last year to a loss of $99 million this year.
• Total revenues were down 11% year-on-year to $1.08 billion, just scraping in above Wall Street’s downbeat estimates.
• Revenue from its core business of display ads fell 0.8% to $463 million.
• Revenue from search ads fell 9.3% to $491.9 million.
• Overall search revenues were down 15% year-on-year to $820 million.
• Paid clicks were down 21%.
• Desktop revenue fell from $873 million to $774 million.

Only mobile revenue numbers left any room for cheer, up from $234 million in last year’s first quarter to $260 million this year.  The issue with mobile growth is that while it’s clearly the right direction to move in, for the time being it monetizes at a lower rate than desktop.

After four years of ‘jam tomorrow’ from Mayer and her team, it’s reasonable to conclude that Wall Street has become brutalized into expecting bad news. The Yahoo! stock actually rose one percent on the latest litany of pain.

But that’s more likely attributable to the elephant in the room - who’s going to buy Yahoo! and when?

Totally aligned

There have been reports that Mayer has not been playing a full role in the bidding process, allegedly not meeting with some potential buyers, but sending them a video of her talking up the firm’s strengths.

It was clearly important for Mayer to address such scuttlebutt head-on yesterday. So it was that, despite having repeatedly stated that she wants more time to execute on her latest turnaround thinking, she insisted that she is “completely aligned” with the board of directors and its search for a buyer:

Our board, our management team and I have made the strategic alternative process a top priority. Our strategic review committee is comprised of independent directors, well experienced in strategic transactions. They are leading a well-run process to achieve the best possible outcome for our shareholders. The management team and I have supported the board's process from the start and we are moving expeditiously. To give you a sense of the time, energy and leadership being devoted, management participates in daily calls and meetings often several per day with the strategic review committee and its advisers.

For the first time publicly, Mayer conceded that she can see two ways that being bought out could add value:

One, by realizing strategic synergies and accelerating growth in our business. And, two, by separating our equity stakes from our operating business, enabling various value accretive subsequent transactions. We've been very thoughtful about running a high quality process, designed to keep interested parties engaged and highlight the tremendous value in Yahoo!.

The option of a reverse spin of the core business is also still an option, although it’s evident that finding a buyer is the main activity at present:

The reverse spin remains an alternative. It is something that our strategic review committee and our board continues to contemplate as one of the strategic alternatives for how we may separate our Alibaba stake and how we might move forward, so we're doing some work there, but obviously the larger volume of work is being done on the process around the possible sale.

But the scuttlebutt has clearly hit home and Mayer set out to tackle what she called “misconceptions”, insisting that she and CFO Ken Goldman have been actively engaged with the bidding process:

We've been responsive and engaging, having personally answered hundreds of questions and requests for information…I want to state it again, our board and management team are fully committed to maximizing value for shareholders, and are completely aligned in pursuit of strategic alternatives. We're working expeditiously and diligently. We're here to serve shareholders and create value, and we are doing all that that entails.

With that somewhat defensive positioning out in the open, that was that for discussion of potential acquirers, with a blunt statement that:

We do not intend to provide future updates or comments on specific details.

What Mayer did want to talk about was how the firm is executing against its 2016 strategic plan:

As we strive to clarify Yahoo!'s next chapter, it's more important than ever to make Yahoo!'s operating business as strong as possible. For this reason, we will continue to execute on our plan, in parallel to the board's efforts to pursue strategic alternatives.

Mayer’s conclusion is:

I remain confident that our focus on execution will create a better Yahoo! for our users, advertisers, employees and shareholders…The high level of interest throughout the strategic alternatives process validates those efforts, and has been both humbling and inspiring to see.

My take

What potential buyers are after is the subscriber base. If that’s inspiring, then so be it, but let’s be realistic here.

The ‘glass half full’ mantra is necessary, of course, and I’d expect nothing less.

But when yesterday’s conference call concluded with a chirpy ‘We’ll see you next quarter’, the only thought that went through my mind was: ‘You reckon?’