Yahoo lacks a workable strategy, and is instead languishing in a state of chaos that CEO Marissa Mayer cannot solve, according to an analyst.
The most likely way of solving a crisis in which investors appear to be losing faith in the company is to sack Mayer, claimed Creative Intellect UK analyst Clive Howard.
He told Cloud Pro: “Yahoo seems to be in state of constant chaos. As a previous CEO asked, it is difficult to know what exactly the purpose of Yahoo is. It just does not seem to be able to decide what business it is and until one does then it’s impossible to really create a workable strategy.
“Instead they lurch from one idea to another, while all the time becoming less relevant.”
The criticism comes as Yahoo plans to lay off 1,000 workers – a tenth of its staff – and perform a reverse spin-off in which it will hold onto a $32 billion Alibaba stake instead of its core web assets.
Howard said: “The only way to solve this is to have strong leadership that decides on a vision and then executes accordingly. If one considers other businesses that have got into trouble over the years, the solution has nearly always been new and strong leadership.”
His comments follow a Reuters report yesterday that said investors want Yahoo to rid itself of its core web services completely by selling them off.
07/01/2016: Is Yahoo about to cut 10% of its staff?
Yahoo is set to chop a tenth of its workforce, equal to around 1,000 people, it is claimed.
The layoffs could begin this month and complete by the end of this quarter, according to Business Insider, which broke the story today citing anonymous sources.
Divisions including media, European operations, and technology would be most affected by the cuts, the publication reported, as the technology giant tries to reorganise its business.
The news comes after activist investor Eric Jackson, of SpringOwl Asset Management, sent a 99-page letter to Yahoo’s board in December demanding it lay off 9,000 employees and get rid of its CEO, Marissa Mayer.
He claimed to have met major shareholders in a bid to grow support for his demands.
Yahoo is currently struggling to turn around its fortunes, shutting down Yahoo Screen, its video streaming service, earlier this week following a $42 million write-down on its TV series in late 2015.
The technology firm also reversed a year-long plan to spin-off its $32 billion stake in Alibaba in December, bowing to investors’ fears that the move would not be tax-free.
Instead it decided to spin-off its core web services, including its search engine and Yahoo Mail. This led to heavy criticism of Mayer, who was hired in 2012 to turn the business around.
Reuters reported today that several major shareholders are now calling for Yahoo to sell its core assets completely, rather than simply spinning them off.
They argue that it would be better to take a tax hit now than see core services’ value severely decline over time.
14/12/2015: Shareholder demands Yahoo lays off 9,000 staff
A Yahoo shareholder wants the firm to make 9,000 staff redundant and fire CEO Marissa Mayer.
Hedge fund investor Eric Jackson said the "era of Marissa Mayer is over", and wants Yahoo to adopt to its old logo to signal her time in charge is at an end.
The proposals are contained in a 99-page report authored by Jackson, which was delivered to Yahoo after the company decided to abandon a plan to sell its $32 billion stake in Chinese retailer Alibaba, instead declaring its intention to spin-off its core web services.
Mayer said she was determined to remain in charge, but an analyst told Cloud Pro she had failed to turn the once-great web giant's fortunes around.
Now Jackson, MD of SpringOwl Asset Management, wants to chop Yahoo's workforce by 75 per cent, as well as cut offers like free food for staff, in a bid to reinvigorate the firm.
Sky News said he is not a major shareholder, but claimed he has met some of the company's largest investors in a bid to win their support.
11/12/2015: CEO Marissa Mayer has "failed" to turn Yahoo around
Yahoo CEO Marissa Mayer has failed to reinvigorate the once-great internet giant, according to an analyst, after she oversaw a reverse spin-off of the company’s web assets.
Yet Mayer intends to remain in charge at Yahoo, saying there is more to accomplish, despite the company deciding to spin off its core assets earlier this week to appease investors.
The CEO had announced a planned spin-off of a $32 billion stake in China retailer Alibaba nearly a year ago, but shareholders’ fears that it would not be tax-free meant that this week the board decided to abandon Yahoo’s web services instead.
Due to the CEO’s role in trying to make Yahoo a key web player again, some experts began to question her position in the aftermath of Wednesday’s announcement.
But Mayer told the Financial Times: “I’m very proud of the accomplishments we have made and there’s a lot more I’d like to see done here. So I have no intention of stepping down.”
Yahoo also denied it is considering selling off those assets, with chairman Maynard Webb telling analysts on a call: “There is no determination by the board to sell the company or any part of it. We believe the business remains very undervalued and we’re focused on realising that value.”
However, Creative Intellect UK analyst Clive Howard told Cloud Pro the future of Yahoo’s web services depends upon the future of Mayer, and that after three years in charge, it is time she left.
“Mayer has clearly had long enough to sort this out and has failed,” he said. “Where she goes will most likely determine where Yahoo goes.”
Since the beginning of her tenure, she has tried to breathe new life into Yahoo Mail and other apps, rethinking them for a mobile age, and has sought to innovate in search, renegotiating a lucrative deal with Microsoft to give Yahoo more control over its own search function.
But stock has continued to slide - since a November 2014 high of $51.75, they are now worth $34.63.
But Howard added that separating the core web services from the Alibaba stake makes sense.
“That might enable one or both to finally deliver on a worthwhile strategy that sees Yahoo transform into a new business that has a place in the current tech landscape,” he said.
“Equally this maybe Yahoo simply getting its house in order to finally bring closure to what feels like a very long goodbye.”
09/12/2015: Yahoo gives up on all its internet services
Yahoo is set to spin off its core web services, including Yahoo Mail and its search engine, essentially abandoning its aim to reassert itself as an internet giant.
The decision was announced today, and it reverses Yahoo’s strategy from spinning off its $32 billion stake in Chinese retailer Alibaba to dumping its core internet services instead.
The reversal comes after shareholders put pressure on Yahoo’s board to hold onto its Alibaba shares, amid fears a spin-off would cost $10 billion in tax.
Chairman Maynard Webb was confident it would have proved tax-free, but Yahoo’s board was unwilling to go forward with the plan due to investors’ perception of the risk, which it feared would devalue its Alibaba stock.
Yahoo released a statement today that said: “The Board will now evaluate alternative transaction structures to separate the Alibaba stake, focusing specifically on a reverse of the previously announced spin transaction.”
That reverse spin-off would see Yahoo shift all its core assets into a newly formed company, effectively splitting itself in two, just as HP did at the end of October.
Despite the turn of events, CEO Marissa Mayer was still confident Yahoo's business transformation could be successful.
"The ultimate separation of our Alibaba stake will be important to our continued business transformation," she said in a statement.
"In 2016, we will tighten our focus and prioritize investments to drive profitability and long-term growth. A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo's business."
But with some industry experts valuing Yahoo’s core services at next to nothing, analyst group Creative Intellect UK’s research director, Bola Rotibi, told Cloud Pro the reversal is not a surprise.
“It signifies a wider story,” she said, questioning whether any of Yahoo’s core services could help reinvigorate the company.
“We don’t talk about search because Google has sewed it up. Outside of Google and Microsoft [Bing] you don’t hear of anyone else,” she said.
“It’s not clear to me what they want to achieve – how many of us go into Yahoo search?”
However, the announcement marks a clear divergence from the CEO’s aim of making Yahoo great again.
In a bid to help Yahoo transition into mobile, Mayer set about updating apps like Mail, Weather, and Sports.
She also reworked its search deal with Bing back in April to allow Yahoo to handle half of its search requests itself, rather than outsourcing them all to Microsoft’s engine, as had been happening.
But Rotibi said Yahoo’s future is unlikely to be in serving innovative tech services to consumers.
She said: “It has a future, it’s whether or not it’s the future Yahoo wants. Is Mayer doing it [the reverse spin-off] to put the company in a good enough shape to go forward? And then the question is, what shape will that be?”
This article was originally published on 09/12/15, but has been subsequently updated (most recently on 14/12/2015) to reflect the latest developments.
