Dear Mr. Berko: Please give me your thoughts on Yahoo. I bought 1,000 shares in 2012 at $17 when Marissa Mayer was named the CEO. A friend of mine who worked with her for nine years at Google tells me that she is brilliant, no-nonsense and a driven workaholic who can succeed at anything she wants. My stock has tripled in value because of Mayer, whom he calls the Golden Girl. My question is: Should I sell my 1,000 shares, which are now worth $50 each, and take a $33,000 profit or hold, hoping that Mayer will continue to work magic with Yahoo and push it up toward $100 a share? My broker thinks I should sell Yahoo because he thinks that Mayer, who is a brilliant software/computer scientist, doesn’t have the skills to manage a sales organization and that she’s taken Yahoo as far as it can go.
— L.C., Wilmington, N.C.
Dear L.C.: I hope you took your broker’s advice, because Yahoo (YHOO) is now $42.85. YHOO didn’t triple in value because of Mayer. It tripled in value, to $51, when Alibaba’s initial public offering put $6.3 billion (after taxes) in YHOO’s bank account; Mayer just happened to be CEO at the time. She had zip to do with Alibaba, which was a YHOO asset for years before the Golden Girl assumed the CEO-ship.
YHOO is still dependent on old-fashioned display advertising and Web searching for 75 percent of its business. A year after Marissa Mayer was named CEO, she engineered the purchases of Tumblr for $1 billion, Overture for $1.6 billion and Inktomi for $235 million. And with MM at the top slot, revenues still declined by $400 million, to $4.6 billion, in 2014, and net income also declined. Revenue gains this year are expected to be flat as a flapjack, and YHOO’s net profits may be lower again. The bright spot at YHOO was the September IPO of its stake in Alibaba, which increased YHOO’s cash hoard to $12 billion. A coterie of YHOO insiders believed that MM would use a portion of this cash to pay a dividend. Not so. This ballerina preferred to use the cash to boost shareholder returns via an enhanced buyback program. The Golden Girl purchased 15 million shares late last year, and additional purchases are expected in 2015. And rumor has it that MM is considering several smaller acquisitions again to broaden YHOO’s product line.
YHOO badly needs to grow its stagnant revenues, and growing revenues, according to most corporate CEOs, is often a good method to improve a company’s earnings. However, improving revenues is not MM’s strong suit. In fact, it may be beneath her. Rather, this gal is one heck of a high-class techie. She got a master’s degree in computer science from Stanford University in 1999, with a specialization in artificial intelligence. She even holds several patents on artificial intelligence and interface design. MM joined Google after graduation — holding key jobs in Google Search, Books, Maps, News and Gmail — but her two-plus years at YHOO suggests that she knows beans about managing a sales force and borscht about raising revenues. However, MM seems to believe she can grow profits by cutting costs. Be mindful that she is not an experienced people manager. When the Ice Queen, as some call her, reduced employee count by 11 percent last year, it wasn’t surprising that her chilly management style caused a number of high-profile defections. Between whiles, neither she nor her management team has done anything to meliorate the loss of these key people. Now this year, the Ice Queen will, with the same cold calculations, demand further cost savings, shed overhead and purge non-core businesses and projects. Sadly, there’s nothing in her playbook about employing a marketing professional to increase revenues from YHOO’s numerous products.
