Yahoo - Mobile World Congress 2016
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Boris Dzhingarov

Does Yahoo have a future?

After enduring a tough time over the last few years, is Yahoo finally turning a corner or is this the end of the road for the technology company?

One of the tech companies that are generating a lot of interest, in recent months, among traders interested in stocks and binary options trading is Yahoo. The company was once a market leader and internet giant, but has recently degenerated into a chaotic scene of desperate executives trying to satisfy activist investors and a whole lot of frustrated shareholders.

Yahoo was an iconic company that helped to introduce the idea of a website as an internet destination. This Silicon Valley marquee was the brainchild of Stanford University graduate students David Filo and Jerry Yang, who founded the company in 1994. Yahoo redefined internet content and was the best known internet company well before Facebook and Google were born.

Today, the company is the internet’s version of America’s old-timey steel companies; once a huge success story, but now largely an afterthought. The 15% stake that Yahoo holds in e-commerce giant Alibaba, which represents an investment worth about $30 billion, is almost its entire market value and the company holds almost no assets.

While the company’s long term future remains uncertain, there is one thing that investors and stock traders can be sure of: 2016 is likely to be a turning point for the company, even though the glory days of the 1990s and early 2000s are long gone.

When Did The Rain Start Beating Yahoo?

For many years, tech enthusiasts and market analysts considered Yahoo to be the last major company that survived the dot-com era, a period that saw names like AltaVista, Pets.com and Lycos rise quickly and fall away twice as fast. Following several tough years, Yahoo has been left far in the wake of current internet giants like Alphabet Inc. (Google), Facebook and Baidu among others, as it tries to get to terms with a rapidly evolving environment.

At the core of Yahoo’s problems is the fact that the company has not developed any new or original ideas in a long time, leading to the internet public opting for more forward-looking and innovative rivals. According to analysts, the stock price desperately needs unique, high-potential projects that will make the company more relevant.

Despite an obvious need, Yahoo’s management has failed on several occasions to implement the fundamental changes necessary to put the company back on the path of growth and, as a result, they are in last-ditch efforts to try and salvage what little is left of the former internet giant. With regard to saving Yahoo, it is becoming increasingly difficult to tell exactly what is worth saving: Is it the floundering core internet business or is it Yahoo’s holding company which owns major stock portions in Yahoo Japan, Alibaba and Hortonworks?

A Board and Management Struggling To Keep the Ship Afloat

To say that Yahoo’s situation is precarious would be an understatement. Thecompany’s CEO, Marissa Mayer, along with its nine-member board, suddenly made a decision not to spin off e-commerce website Alibaba, in spite of considerable pressure from Starboard Value, one of the activist shareholders. Besides a whole host of core assets that are likely to be sold, the company has also lost more than a dozen executives in 2015 alone. An ill-advised chain of acquisitions have done very little to impact the ailing company’s bottom line.

One of the ideas mooted as a possible way to revive Yahoo under its current management is to concentrate only on the company’s core businesses and to spin off some of its non-core assets. This scenario would mean selling some of the company’s biggest assets, such as Alibaba and Yahoo Japan, to third parties who could use their major stakeholder status to control the direction of these companies. Potential buyers include Amazon, eBay or even Alibaba itself.

By selling Yahoo’s stake in Alibaba and Yahoo Japan, CEO Mayer and her team will then have no choice but to come up with an ambitious strategy that could trigger the fundamental turnaround that the company’s core business desperately needs. On the downside, the fact that the management of the company has not managed to do so for three years now, makes many traders and investors doubt that they can manage it under the current high-pressure environment.

Could Selling Its Core Business Secure Yahoo’s Future?

Another possible scenario that is under consideration is having Yahoo sell its core internet business to the highest bidder and remain as a holding company. By taking this route, Yahoo as we know it, would cease to exist, with the company becoming a subsidiary or brand of the buyer or transforming to a P-E fund. Following its sale of the core business, the company will then have to face a dilemma: Should Yahoo sell the remaining sections of its business or continue to exist as a holding company?

This scenario is likely to be supported by many shareholders and investors because Yahoo would get a decent price for its failing and unwanted businesses, while having potential to spur future growth of the new-look company.

Regardless of the choice that Yahoo makes – whether to sell its non-core assets or its core business – what is clear is that both options are complicated. This is because both involve many moving parts which change every day. However, both options share some similarities: they both acknowledge that, in order to survive, Yahoo must go through a fundamental shift and that shareholders are growing impatient for these changes to occur. This understanding is in the best interest of the company’s stockholders and, if handled properly, should see the value of the company’s stock appreciate significantly in the future.

Other Tech Giants’ Past Struggles Offer Hope for Yahoo’s Future

Although there are many people who have already dismissed and disparaged the company’s chances of revival, there are some who steadfastly cling to the belief that the company will find a way to take advantage of its excellent sport, tech and finance content. The fact that Yahoo has about 1 billion visits every month is cause for optimism. The beauty of the story of Silicon Valley is that it also includes a number of large tech companies that have managed to rise up after nearly everyone had given up on them.

One of the most memorable examples is Apple, which had been floundering in the mid- 1990s before a string of innovations that they introduced saw the company embark on an unprecedented run of success that had never been witnessed before in corporate America. There was uncertainty over Facebook’s mobile strategy for a while but the company managed to not only gain user confidence, but it has taken off in a big way.

Even Google hit a few snags on its 15 th birthday, but has managed to rise and become the biggest of all the internet businesses in the world.

In spite of this, Yahoo remains trapped in a vicious cycle of dwindling ad revenues and stunted growth in its user base and search market share. The company will have to learn quickly from the lessons of its peers’ past struggles if it is to have a future.

Yahoo’s Future May Be Tied In to Marissa Mayer’s

The already shambolic situation at Yahoo is sure to build up into a state of chaos soon if Mayer’s statement late in 2015 regarding a ‘narrowing’ of company strategy and ‘focus on newer products’ is anything to go by. Besides the steps being likely to result in massive layoffs, there have also been murmurs of a private equity firm seeking to buy some of Yahoo’s key assets.

Time could be running out for the company’s CEO, a successful executive during her time at Google, but who found herself in an entirely different situation upon her appointment to head Yahoo in 2012. According to many analysts, Mayer’s case is a good example of the valley transplanting a highly successful exec to a different company with a strange culture, where things that worked at Google may not necessarily be a fit for Yahoo’s business.

All of this leads to the million dollar question: How long is Marissa Mayer going to survive as Yahoo’s CEO? Many people would put their money on her staying and fighting on, in spite of self-inflicted wounds, a tenuous relationship with her board and criticisms from investors and market analysts.

The Final Word

For the immediate future, Yahoo will continue to work on its long term survival plans. It still boasts a considerable user base and this provides cause for optimism. Although sentiment points toward avoiding Yahoo stock in 2016, investors need to take higher risks if they are to generate higher returns. The current environment surrounding Yahoo offers the opportunity for investors involved in option trading to buy Call options on the company and benefit from a potential upside.

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