Yahoo! Inc. posted its second quarter (Q2 2015) results a little over two weeks ago and the firm’s finances suggest that it is a relic of an era long gone. The firm posted a less than stellar quarterly result.
Yahoo posted earnings of $0.16 per share on revenue of $1.03B below the estimate of EPS of $0.18 per share on revenue of $1.04B. Yahoo did record an increase in its revenue but the expense side of the balance sheet has practically erased those revenue gains.
CEO Marissa Mayer in the earnings call confirmed Yahoo’s deep spending habits. She said the firm is “investing heavily to grow market share through traffic acquisition.” Another news of that heavy-spending habit is now making the headlines. Bloomberg reports that Yahoo has paid about $240M to acquire the social commerce startup, Polyvore Inc.
Polyvore is simply a visual search engine for fashion trends, clothing and outfits. Polyvore is similar to Pinterest in that users generate the content (fashion niche) by arranging pictures of clothing by outfits and combinations.
Details of the Yahoo – Polyvore deal
Three former Yahoo employees founded Polyvore. The startup’s CEO, Jess Lee had worked under Yahoo CEO, Marissa Mayer when they were both at Google. The specifics of the deal though not official, have it that Yahoo paid $200M to acquire Polyvore. Yahoo will also pay an extra $40m in employee retention costs to Polyvore workers who choose to stay on board for a fixed period.
Polyvore will be fused into Yahoo’s family in what will be a two-way plan. Yahoo will bring Polyvore into its mobile ads network and Polyvore will see an increase in traffic from assets such as Yahoo Style and Yahoo Beauty.
The real cost of growth
CEO Marissa Mayer, in her Tumblr blog provided some insights into why she bought Polyvore. In her words, “the combination of Yahoo’s exclusive, premium content with Polyvore’s expertise on community-driven experiences and retailer-supported commerce has amazing potential”. She further said, “the acquisition will accelerate digital content growth strategy across the areas of social, mobile and native.”
Yahoo was been left behind in the online and mobile ad business when Google and Facebook took over the market. Miss Mayer has been working hard to infuse life into the firm with a number of moves.
Nonetheless, it seems that Yahoo’s only solution for growth is to buy it. The firm bought Tumblr for about $1.1B. In fact, the firm spent more than $900M on “acquihires” that include Flurry and BrightRoll last year.
It remains to be seen whether those expenses will help Yahoo regain lost ground in the grand scheme of things. However, it is certain that its expense side of the balance sheet will be bigger in the third quarter as the firm continues to invest heavily in growing market share.