Shrinking revenues add to Yahoo’s woes as it vets suitors

Shrinking revenues add to Yahoo’s woes as it vets suitors
Yahoo CEO Marissa Mayer. Photo: AP
Published: 4:06 AM, April 21, 2016

NEW YORK — Yahoo said on Tuesday that its business continued to deteriorate in the first quarter, putting more pressure on the company to find a buyer quickly for its Internet operations.

Ms Marissa Mayer, Yahoo’s chief executive, said during a webcast to discuss the financial results that a review of potential suitors was proceeding at the “fastest responsible pace”, but she declined to be more specific. She also disputed news reports that the company was dragging its feet on a potential sale and refusing to share information with bidders.

“Let me be unequivocal: Our board, our management team and I have made the strategic alternative process a top priority,” said Ms Mayer. “We’ve been responsive and engaging, having personally answered hundreds of questions and requests for information.”

The first bids for Yahoo’s core Internet business were due Monday. Verizon Communications, the mobile phone carrier that owns AOL, was widely viewed as the leading contender.

Bain Capital and Vista Equity Partners have submitted a joint bid, with Mr Ross Levinsohn, Yahoo’s former interim chief executive, playing a major role, according to a person involved in the bidding process, who spoke on condition of anonymity because the bids were confidential. Other bidders included the private equity firm TPG.

A special committee of Yahoo’s board is now expected to sort through the preliminary offers to decide which to pursue. The company did disclose that it paid its outside advisers US$9 million (S$12 million) during the quarter.

Ms Mayer hinted that Yahoo would prefer a buyer such as Verizon that could achieve “strategic synergies”, as opposed to a purely financial buyer, such as a private equity firm.

Yahoo, based in Sunnyvale, California, said revenue fell 11 per cent to US$1.09 billion, and its net loss was US$99 million, or 10 US cents a share, in contrast with revenue of US$1.23 billion and net income of US$21 million, or 2 US cents a share, in the same quarter a year ago.

After deducting payments Yahoo made to advertising partners for traffic, its revenue exceeded Wall Street’s expectations. Profits after adjusting for certain items also narrowly beat projections, although shareholders are much more focused on the potential sale of the company than quarterly financial results.

Analysts were unimpressed with the results, but said the company’s exact financial results did not matter.

As Mr Brian Wieser, an analyst at Pivotal Research, put it in a note to clients, there was “relatively little commentary on the transaction news that so many are waiting on, and relatively more commentary on the current state of the business and management’s plans, which likely won’t matter for very long”.

In February, the company offered a gloomy financial outlook for the year as it restructured its operations and began exploring a sale.

Yahoo, a leading content portal in the early days of the Web, missed the shift to mobile devices and has been struggling to compete against Google, Facebook and specialty apps for advertising dollars and user loyalty.

Ms Mayer, Yahoo’s CEO since 2012, has failed to turn around the company.

Restive shareholders are pressing the board to sell the Internet businesses and unlock Yahoo’s large stakes in Alibaba, a Chinese e-commerce company, and Yahoo Japan, an independently traded company. Together, those two investments have a face value of about US$40 billion — more than the US$35 billion stock market value of all of Yahoo, based on Tuesday’s stock prices.

While the sales process has advanced, Yahoo’s management team, led by Ms Mayer, has continued to run the business as if nothing were going to change. Yahoo said it again increased mobile revenue in the quarter, but declines in search and display advertising revenue more than offset that growth.

Yahoo noted that it ended the quarter with 9,400 employees, down 21 per cent from the previous year, as it eliminated many of its digital magazines, closed overseas offices and made cuts in other parts of the business.

Mr Kenneth Goldman, Yahoo’s chief financial officer, said the company was continuing to explore the sale of real estate.

Mr Mark Mahaney, an analyst at RBC Capital Markets, said: “This was same old, same old at Yahoo ... The overall trends remained relatively soft.”

Mr Jeffrey Smith, the chief executive of the Starboard Value hedge fund, said on Tuesday that he intended to keep the pressure on Yahoo. Starboard has proposed an alternative slate of nine directors to replace Yahoo’s entire board at the company’s next annual shareholder meeting, expected in June. THE NEW YORK TIMES