[Long YHOO and BABA]
Yesterday, I deconstructed an interview done by Yahoo's "head of emerging products" Adam Cahan, in which I challenged some of his public assertions about how well the company is doing in its turnaround.
I'm long the stock has have been since late 2010, after being in the stock for several years before the crisis. So, I want this company's true value to be recognized in the market (especially after the latest tax rumors took it down yesterday). If that happens, and Alibaba rallies to new highs, this could and should be an $80 stock.
And, although I've been frustrated and openly critical with CEO Marissa Mayer for almost a year now, I think she's quite capable of turning this company (and stock) around.
I understand that company management spins. Heck, we all spin. We all have a tough time honestly looking in the mirror. But when we do, and we're honest with ourselves, we're better for it. Sometimes it's a friend or spouse who forces us to be honest with ourselves. Sometimes it's a critic.
I would like to see Mayer and the rest of the management team succeed at Yahoo. They were given a tough task. But I don't like some of the spin they've been making of late in the press to defend their performance. Maybe it's not spin. Maybe they mean everything they say. But if that's the case, they're completely out of touch and need to wake up to reality.
I corrected Cahan's points yesterday. Today, I've got to address several of Mayer's comments to Pattie Sellers at a Fortune event on Monday.
First, let me say, you can't read this interview and not be impressed by Mayer's grasp of the situation she is in. She understands their existing declining business and the need to build new revenues that are going to move the needle for this company. Understanding a problem is the first step to fixing it. I've had several people who know Mayer and want to see her succeed in this role say, "You don't understand how bright she is. She's so bright." I believe them.
But, with that said, here are some points she made in her discussion that drive me up the wall and I think she deserves to be called out for:
1. Mayer only does these "controlled" media appearances. This was with Pattie Sellers. There was that Medium story a few months ago with Steve Levy. There's on stage interviews at AdWeek where all the questions are screened in advance. It's controlled. It's safe. There are assurances made to her in advance that she will end up looking good. No tough questions will be asked (unless you think "very seriously, how do you justify Katie Couric's $5 million a year salary?" is a tough question). Mayer is obviously smart. So why run? Why hide? Why not do an interview with a tough critic head-on? I frankly think there are probably only 3 people in the world who could really give her a tough but totally fair grilling because they understand the company sufficiently well and are not trying to suck up to her (the way media or analysts would): me, Kara Swisher or Jeff Smith. Other journalists, and I like and respect them, just don't understand Yahoo well enough to do as good a job. Mayer could handle it. She could clear the air. She would come off well, like she's not ducking tough questions. She and the company would be the better for it than the kind of questions she got on Monday.
2. Yahoo consisted of a bunch of country-bumpkins when I arrived in July 2012. She's never said it exactly this way, but, as a way to defend her performance, Mayer likes to portray that Yahoo was so backwards when it came to mobile when she arrived as CEO. Here's a bit of what she said on this on Monday:
And it was interesting because, at the time, as I was going around Yahoo putting together my plan, my team, it was funny because people were talking a lot about the mobile web, we were talking about the four or five different platforms that we needed to work on.
People were talking about HTML-5. And we had to pick a lane. And we were late to mobile, so we had to pick correctly. And when I looked at that I just felt like apps were such a more rich experience for users.
When did Mayer announce her "plan" for Yahoo? It really wasn't until the October 2012 earnings call, 3 months on the job. So, it's fair to say that she was formulating her plan (including mobile) between July and October that year.
The way she presents it now is like "Can you believe that there were people at Yahoo who still wanted to do stuff in HTML-5? I mean it's obvious it was going to be apps, right? So I set them straight."
Yet, when did Facebook finally abandon its initial push into mobile via HTML-5? Not until August 2012. Was Yahoo so backwards if Zuckerberg didn't switch over until roughly this same period that Mayer was formulating her strategy?
3. Mayer tells the story of how she came up with the MaVeNS (Mobile, Video, Native, and Social) concept to chart Yahoo's new path to replacing revenue from its declining display business (which reflects its declining PC web business). It's not an original concept. Carol Bartz talked up the importance of the 4 O's (Mobile, Video, Social and Local) as future pillars for growth starting at the May 2010 analyst day - more than two years before Mayer started. The strategy that Mayer is following is not new; it's Bartz's. That's ok. It still makes sense. Just don't pretend it's yours; own it. And don't throw prior management under the bus as incompetent (save for the Scott Thompson era) if you're doing exactly what they did.
4. Mayer says Katie Couric's contract is profitable. That means Yahoo makes more than $5 million a year in ad revenue (which is what they pay her in salary). The Wall Street Journal recently said Yahoo only sold about half her salary in revenue. It would be interesting to know more details on the discrepancy here.
5. Mayer didn't really "hire" Katie Couric. Sellers asks her:
Speaking of creating content, you’ve made some very high profile hires, including Katie Couric. Why did you hire Katie and how do you measure her return on investment?
I guess technically this is true, but everyone knows that Couric started working with Yahoo when Ross Levinsohn signed the partnership between Yahoo News and ABC News in October 2011. It worked out so Katie signed on for her own web show in April 2012 -- 3 months before Mayer was hired. Yet, listening to Mayer's response, you'd think Couric had no ties with the company before Mayer's hiring.
Mayer did interview Couric later as she recounts to Sellers, but she basically just renewed the deal which Levinsohn had signed with Couric in April. That's ok. You can admit prior management had a good idea that you decided to continue. Just own it.
6. This notion that MaVeNS is now a billion dollar a year business from nothing is grating to me. Cahan said this the other day. Mayer has been saying this since last October in response to the Starboard criticism. She said it again on Monday:
We did $1.1 billion of revenue last year on the MaVeNS. Which is pretty staggering. From basically nascent to nothing in 2011. So in basically two years to build a $1 billion revenue steam is pretty amazing.
From nothing in 2011. What did Facebook do in mobile revenue in 2011? Zero.
What did Facebook do in mobile revenue in 2014? $7.3 billion.
Started in the same place Yahoo did in 2011. Now it's 6.6x as big if you take Yahoo's gross $1.1 billion at its word.
Yahoo deserves no trophies for this conversion of its 800 million desktop users. It would be like dumping a pool-sized amount of water into a wine bottle and wanting a prize for filling up the bottle.
7. Mayer also gave a long explanation about why "people on the outside" wrongly thought that AOL and Yahoo would have been a good fit.
AOL made a big bet on programmatic advertising. Where we’re really making our bets on mobile, video, native, social.
Wait, Yahoo isn't betting on programmatic advertising? Then why did they buy BrightRoll in November - two months after Starboard said they should merge with AOL - for $640 million in cash (although, with earn-outs as spelled out in Yahoo's 10-K, that price will go north of $800 million making its 8x price-to-sales multiple one of the most expensive ever done in ad tech)? In Yahoo's own press release, it describes BrightRoll as a "leading programmatic video advertising platform."
This explanation makes no sense at all.
8. Finally, I can't let this last point go. Mayer tells a Gone-With-The-Wind-esque story at the end of the interview about how Sergey Brin advised her to be bold when she left Google to go to Yahoo:
But right as I left I had my hand on the door, I said, “Sergey, it’s time for me to go, I’ve got to go.” And I had my hand on the door and he said, “Marissa wait.” And I turned around and I said – and he looked at me and he said, “Don’t forget to be bold.”
And I actually hear that in my head every single day that I’m at Yahoo. Which is if you really want to create something transformational, if you really want to make a difference in your life and other people’s lives, yes it’s always easy to take the safer incremental choice and to iterate.
And I think that’s sort of more instinctual to me. But Sergey knew that probably the thing that I would need the biggest push on as I left was to remember to be bold. And that has helped me in so many different moments, be it deciding whether or not to acquire Tumblr, deciding what to do with our Alibaba stake that ended up being worth somewhere on the order of $30 to $40 billion.
Deciding what to do with the Alibaba stake was an example of being bold? What?
What exactly did Mayer do to exhibit boldness in that decision? Deciding to listen to shareholders and - after an activist threatened a proxy fight - capitulating to do a spin-out of the Alibaba stake? That was bold?
If she still owned 40% of Alibaba back in 2010 and Alibaba attempted to buy it back at something like a $10 billion valuation and she said no, that would have been bold. If Alibaba yanked Alipay out of Alibaba Group and Yahoo's board had said to her "Jack Ma's a wild man... we should just sell the entire stake because it's Chinese law, don't you know?" If her board - claiming they had been teased about being the worst board in America so they needed to do something to get the heat of them - had pressured her to do a quick deal and she said no, that would have been bold. Never selling a share of Alibaba like Masayoshi Son would have been extremely bold.
Is it bold to announce on the last earnings call that they hired advisors to study how they could spin off the Yahoo Japan stake? The same advisors who have told them what to do with that stake for more than 5 years now and Yahoo has just never acted on it? That's not boldness.
