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Yahoo investors rankle at spin-off plan, one suggests laying off 9,000 (arstechnica.com)
47 points by pavornyoh on Dec 14, 2015 | hide | past | favorite | 56 comments

I'm really sick of "investors" thinking that trimming every little cost here and there is going to somehow fix things. As if they didn't have dozens of historic examples to show them what penny-pinching will do? Employees will be pissed off! The ones that stay will basically reduce their enthusiasm and valuable work output to 0%, if not actively sabotaging you by aggravating your remaining customer base with incompetence. The rest (probably the most talented ones) will leave, dooming all projects so that in 3-6 months the company will want exactly the same cuts again.

Here's a different approach: cut at least one big idea or product line that isn't going anywhere, that your competitors have long since dominated. Then, aggressively refocus the company on making the remaining products great. And that doesn't mean being cheap; indeed, they may want to hire dozens or hundreds to help the focus areas become as unique and valuable as they possibly can be. It may even be necessary to make some pitches to attract new investors around those products. And yes, keep giving those people iPhones and free food; don't be ridiculous, you need that to offset the fact that there's a dozen other places they could be.

It also sure wouldn't hurt if they could at least try to get back into the public eye. When's the last time you saw a commercial for Yahoo, or could even name what it is that they do?

Read this


"But what is much more shameful is that the whole point of Yahoo as a company right now is to not pay taxes on Alibaba. I realize that seems a bit hyperbolic, but just look at those numbers. Those Alibaba taxes are worth at least two and a half times the value of Yahoo's entire business. If there was a way to avoid paying taxes on the Alibaba shares that involved burning all of Yahoo's actual businesses to the ground, Yahoo should do that all day long, and then do it again the next day. It would still add shareholder value."

If that's shameful, who should be ashamed?

- Yahoo's current management, for pretending there's anything to save?

- Yahoo's past management, for blowing their phenomenal brand equity?

- Yahoo's employees, for sticking around?

- Yahoo's investors, for owning this dog despite knowing the situation when they bought it?

- Congress, for having a braindead tax code?

- The press, for continuing to publish countless stories about a company that hasn't been relevant for at least a decade?

- Us, for continuing to read and comment on them?

- Someone else?

We could also blame everyone's parents for having the poor foresight of birthing the people responsible.

/s (because there's always that person without a sense of humor)

I'm really sick of "investors" thinking that trimming every little cost here and there is going to somehow fix things.

The investors aren't saying their plans would fix Yahoo. They are saying their plans would extract more dollars per share from Yahoo. I think they agree that their plans would lead to a dying Yahoo product.

Right. They basically want to run the company out and milk it for cash distributions.

Which is their right. Investors own the business. If you don't want to lose control, don't sell voting rights for money.

I totally agree, and a runout is probably higher in expected npv than their current strategy.

It's just weird, however, given they hired Marissa Mayer. She is, or at least is perceived to be, a product specialist; nothing about her, professionally or temperamentally, seems like she'd be good at being a ruthless cost cutter who operates run-outs.

First, the set of investors at the time Mayer was hired are not exactly the set of investors now, and second, the opinion of the investors now (even to the extent that they are the same investors) that Mayer -- or anyone else -- can turn around the Yahoo! product may not be the same as it was at the time she was hired.

I agree generally, but I don't think it's inconsistent from the investors' points of view. They could have hired her with hopes for a renaissance and then just lost patience. Mayer's performance might have disappointed them (in the sense that she's responsible for everything, not her personal performance). That's why she gets the big bucks -- she was expected to deliver results.

I actually take consolation in the fact that CEOs are under tremendous pressure to deliver results to shareholders. I would be much angrier if the board were enjoying the company jet and giving Mayer the benefit of every doubt while Yahoo! burned.

That type of look-the-other-way, cozy with the CEO type of board used to be more normal -- before activists, hedge funds, LBOs, etc. -- and there was a lot more disgusting behavior (I'm thinking specifically about Ross Johnson in Barbarians at the Gate -- flying his board to golf outings while he robbed RJR Nabisco blind).

Investors are the millions of individual share holders, not just the bunch of wall street hedge funds and holding companies.

If you're advocating that the hedge fund managers and pension funds accept a smaller return on investment in order to save Yahoo! engineers from layoffs -- that's a breach of fiduciary duty and against the law.

No. It is not against the law. I think it is only unlawful in the case where the company is actively up for sale.

Fiduciary duty applies to all agents acting on the behalf of principals, all the time. If an agent were to honestly believe that it was in the best interests of shareholders (financially) to keep Yahoo! jobs, it would be fine for him to vote that way. If an agent were to believe that layoffs were best for shareholder value, but voted otherwise in order to fulfill another objective, that's absolutely a breach of fiduciary duty, which is a legal duty.

> If an agent were to honestly believe

"Honest" or it's derivatives is the last word I would use in a sentence which includes Wall Street. Haven't Wall Street proven time and again that they are only interested in short term gains rather than a long term vision? I would be skeptical about any advice/opinion from a Wall Street firm.

Incorrect. It is actually against the law.

No it isn't. It's called value investing.

Fiduciary duty is in fact a legal duty, and it requires that agents act solely in the best interests of their principals. I have no idea what value investing has to do with this concept.

Sure, but what the parent comment suggested isn't a breach of fiduciary duty.

Sure it is.

I think investors could rightfully say that they "are sick of 'online commenters' thinking they know what Yahoo should do without having any skin in the game."

You cannot "aggressively refocus" without cutting something. For a company like Yahoo, resource allocation is a zero sum game. Moreover, if Yahoo sees iPhones and free food as the only things keeping an employee from leaving, aren't they doing themselves a favor by letting those employees quit at will?

> Moreover, if Yahoo sees iPhones and free food as the only things keeping an employee from leaving, aren't they doing themselves a favor by letting those employees quit at will?

It's not that iPhones and free food keep people, it's the signal that even the little expenses are going to be penny pinched with no regard for employee morale. Which seems like a pretty good reason to get out IMO.

Interestingly, these online comments would not exist were it not for Yahoo. Y Combinator would not exist. Every company that Y Combinator mentored may not exist.

Some might argue that "online commenters" probably have more skin in the game than investors, they just aren't as close to the money.

I think it would be more than right to say that investing does not inherently mean one has skin in the game. Or perhaps we have so diluted the concept of having skin in the game that, like free speech, we're going to say it equals spending money.

Didn't people used to complain about do-nothing managers looming over their pet projects and padding the payroll with their lackeys?

The investors aren't trying to fix Yahoo. By some estimates, the core business of Yahoo has a negative market value meaning they're not adding anything of value. Yahoo is a dying business and they don't really hold a competitive advantage in anything worthwhile. It may make sense to wind the company down and give back the capital and resources to more worthy ventures. Yahoo tried rebranding and hired a high profile CEO to no avail. It's nothing personal but if it were as easy as cutting a few projects, offering better perks and hiring good people, Yahoo would have done so already.

>> "By some estimates, the core business of Yahoo has a negative market value..."

I dislike those estimates. Yahoo is the Nth highest-traffic site in the English speaking world, where N is probably < 100. It strains credulity to imagine that a site with that much traction truly has negative value.

Edit: [0] claims that Yahoo is the 6th most popular site on the web.

[0] http://www.alexa.com/topsites

> Yahoo is the Nth highest-traffic site in the English speaking world, where N is probably > 100.

That's true of most sites in the English speaking world. If you remove the fuzziness of "probably", its true of all but 100.

> It strains credulity to imagine that a site with that much traction truly has negative value.

That only makes a little bit of sense if you flip the > to be a <.

But even then, traffic is a cost driver; its only worth something if you have an effective way of monetize it. "We lose money on every transaction, but make up for it in volume" is as much of a fallacy with web sites where the transactions are "visits" as it is for any other type of interaction.

According to Wikipedia, Yahoo!'s 2014 net income was $7.52 billion. Do they get income from their stake in Alibaba?

They sold a lot of shares during the alibaba IPO in 2014 : https://investor.yahoo.net/secfiling.cfm?filingid=1193125-14... .

Generating value for shareholders is different from generating value. Yahoo may be a fantastic charitable enterprise, making products users like well enough.

not growing does not equal dying.

> When's the last time you saw a commercial for Yahoo, or could even name what it is that they do?

A few weeks back there were still hundreds of yahoo ads all over san francisco. Albeit it didn't communicate on anything else than a logo, I am not too sure marketing is what yahoo needs to exit its technical mediocrity.

Well for instance, if I see a commercial for something like Expedia I know immediately what Expedia is and how it can be used. I also know the web site name.

At the very least, Yahoo needs that type of thing: something to remind us who they are and why the hell you would visit their site.

Today, there is still a giant Yahoo billboard in SOMA. I drove past it this morning.

Same ads are running in Boston. Nothing except a yahoo logo.

> I'm really sick of "investors" thinking that trimming every little cost here and there is going to somehow fix things.

Giving such control to investors is the least bad compromise for running companies. On the spectrum of: "let company survive because it should" to "let company survive because it is giving us as much in returns as we expect", Yahoo is towards the latter. People think they will lose money on Yahoo because they don't see a path for its growth. The end of the spectrum with "let company survive because it should" is terrible, just ask current and former socialist countries where many industries are/were government owned. An example is Air India, which is propped up the government as a showcase national carrier in spite of being massively loss making and a shitty carrier in the modern era of race-to-the-air-travel-experience-bottom.

Bluntly, it doesn't matter what the investors or managers do. They can piss off their employees, fire them, or do neither; they can cut products and staff or grow or both or neither; they can become two companies or three or 400; they can spend their $5 billion of cash on marketing or salaries or lawyers. Nothing is going to bring back "Yahoo's core business". Ever. It's dead. Dead dead dead. We're not even beating its bloody corpse because its corpse rotted into dust years ago.

Yahoo's investors should be focused on how they get as much as possible of the current market value of Yahoo's:

- Yahoo Japan shares - Alibabi shares - cash

Period. That's how they maximize total return. Not fretting over whether they pay for employees' phones and coffee. You're right that it isn't the problem. But neither is any of that other stuff you talked about.

It's dead, Jim. Move on.

"Fix things?" What are you talking about? yahoo is a profit delivery vehicle. They should have cranked out dividends if they didn't want this.

Plus, the brand is severely damaged, it's become the new aol and while it functions and could potentially make money, it's not going to be a darling again. Not to the people here. Some clever selling off of things could be interesting, yahoo fantasy sports should be played on Facebook, for example. There are other interesting things that could happen, if they don't make it toxic to the buyers but it's almost certain they will try to saddle the tax burden on it with tricky debt transaction or something.

For a mature public company like Yahoo, the investors are actually more likely to know what's best for the company than management, whose interests are highly misaligned. In this case, putting yahoo into runoff mode probably offers the best ROI.

Employee morale must be terrible. Even worse is the idea that a significant improvement will come from "eliminating employee perks like free food and company iPhones", which are a tiny fraction of the total cost of an employee, but the cutting of which sends a strong negative signal and may result in further loss of productivity and morale.

Not to say there aren't issues with this, but I think there is also something to be said around expectations. If your company is not healthy, perks tend to suffer because at the end of the day, they don't matter if you have to fire everyone. There's a certain type of individual who picks a company based on perks, and when a company is in trouble, you'd much rather have employees that are there for the business and the mission.

Now, that said, this is Silicon Valley. Free food and company phones are table stakes for any company wanting to hire and retain top tech talent. Combined with the fact that these two perks in particular enable improvements in employee productivity, and I think that would be a very dumb move.

Free food is also a great way to transfer value to the employee without it being taxed multiple times over. It's an under-the-counter method of payment.

How many employees believe in Yahoo's mission? What even is their mission?

indeed. what is shameful is about 1-2yrs ago it seems like yahoo was on a hiring (well.. interviewing/recruitment) binge. to be fair, anybody whos been at yahoo for the long haul, or recently hired in should have known it was a risky environment. it's not like investors have been silent

not to mention, there aren't many places for food around 1st and matilda. A starving employee would have lower output.

As Yahoo! spent $450M over 4 years to deliver food catered by Bon Appetit to its workforce, starvation must not be an issue for the employees. (Source: http://www.businessinsider.de/yahoo-shareholder-presentation...)

From the article it seems like one institutional investor wants to lay off 9000 people.

Im not sure whats worse. The layoffs or the story circulating in the media. Would love to hear what morale is like right now, over at Yahoo.

They are not real people for "institutional investor", they are just numbers that costs money, money that could be /in their own pocket/ instead of wasted buying food and other perks.

Clearly what he means is that she's not a Carly grade of CEO, firing 10k+ employees [0] and deeming the whole episode a resounding success.

[0]: http://carlyfiorina.org/

I agree, but the sad thing is that I think doing a mass cutting of middle management would probably actually be a good idea.

Well, what do you expect? P-zombies' facsimile of empathy can only stretch so far.

Could someone explain the tax situation to me?

If putting the Alibaba holdings into a separate company would incur tax, why can't they just put everything else into a separate company, called say "Yahoo Media", and leave YHOO with just the Alibaba ownership?

As usual, Matt Levine is excellent at explaining these sorts of things:


Isn't that what they're trying to do? Spin off all of Yahoo's current business into a new company, leaving current Yahoo with just the shares of Alibaba.

I don't get it. Why shouldn't Yahoo pay the taxes? They invested in Alibaba, and have made HUGE gains, and if they want to realize those gains, they need to pay the taxes.

The shareholders of YHOO will pay taxes regardless. If YHOO wants to spend the money from Alibaba, it will (and has already done so) pay taxes. The question is whether YHOO should pay taxes before returning the gains to the shareholders, who will then pay taxes.

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