Yahoo! Inc. ’s core business retains little value through its sum of parts. And any value unlocking will need some hard steps. Jordan Rohan, Managing Partner at Clearmeadow Partners, wrote on Re/code.
“Yahoo’s core business remains an elusive yet dreamy prospect for private equity. Today. If only Yahoo management would act like private equity now, and treat Yahoo like a mature media company worthy of a real turnaround … then Yahoo’s current shareholders (of which I am one) would benefit from the strategic and financial value,” he wrote. “a streamlined Yahoo core business could be worth $12 billion in three to five years, as opposed to $3 billion to $5 billion to private equity today.”
Jordan goes on to suggest a 5-step plan for Yahoo’s management that would help the firm make the difficult transformation.
Yahoo Should Initiate a Massive Share Buyback
Yahoo! Inc. has about $7 billion in cash. And at $30 per share that could equate to a 25 percent decline in total shares outstanding. This in turn should increase EBITDA and free cash flow on a per share basis by one-third, provided all else remains equal.
Alibaba Spin-off should be Delayed
Alibaba shares are cheap, and Chinese equity markets are massively out of favor. However when emerging markets stabilize, investors are bound to return to secular growth stories like Alibaba.
“Collaring the asset for six to 12 months could be nearly costless, and could give investors and executives room to breathe…If things get worse with China broadly or BABA shares specifically, the Yahoo CFO would look like a hero by protecting the downside. Take the risks you can control, and minimize the others,” Jordan wrote.
Cost Cutting is Essential
Yahoo! Inc. has to cut down on costs if it has to turnaround its business. One way to do that is to reduce headcount and eliminate redundancies. The tech giant can also outsource costly functions, and focus on things it does well.
“Stock comp is massive, partly due to additional deep-in-the-money shares vesting every day…A quick look at the financials shows more than $3 billion in costs (excluding TAC and stock comp) and 11,000 employees?–?roughly $270,000 per head. Neither of these figures, employee headcount or cost-per-head, makes sense today.”
Revive Google paid-search deal
Yahoo! Inc. ’s search market share is fast eroding. Jordan suggests that one way to halt the slide is to revisit the Google paid search deal. That should add an incremental $400 million in revenues, with no incremental costs. Google however may be reluctant to do something that would increase regulatory scrutiny. But “an arms-length deal has a chance,” he adds.
Yahoo is Neither a Guide nor a Start-up
Yahoo! Inc. should stop referring to itself as a “guide” or “the world’s largest start-up” as neither of those descriptions makes any sense.
“Yahoo is a mature digital media company with a vibrant global audience and massive financial resources.”
It’s high time it realizes where it stands!