Buffett has basically parlayed the prestige of his name into sweetheart deals with provisions that no other company could get (eg. his investment in Goldman Sachs).
My guess is that Buffett's team looked generally at the risks within Yahoo and hedged them with generous covenants on the financing.
I am surprised that Gilbert didn't get Wall St financing. I would think that analysts at the big banks could structure a deal more carefully aligned with the underlying risks.
From a business perspective (he says having no business experience or expertise), Yahoo is a collection of assets: Code, people, branding, community. They aren't in first place, and they aren't profitable at the moment, but I think the case that they have zero or negative value is a bit simplistic.
Put it another way: Would you rather throw a pile of money at trying to build a collection of code, talent, business contracts, and users from scratch, or would you rather buy an EXISTING collection, on the cheap, and work instead to flip it into a profitable business? Both are risky ventures, but everything I've seen says it's harder to build from scratch than it is to keep existing users.
Perhaps your answer is that you'd prefer to build it from scratch, but do you see why - if the answer takes some thought to determine - that someone else might come to a different conclusion?
Heck, even if you want to completely toss the business model - even if you want to toss everything they've done and what they are trying to do - I'd imagine the servers, in-house expertise, and collected code and utilities, not to mention any purchased or licensed software, would make Yahoo worth considering as an acquisition.
Of course having a good dividend AND capital growth would be desirable but shareholders won't complain too loud about a company that just spits out dividends year after year.
Every time you use the word "growth" to describe "success", you will find that you only have new mouths to feed.
Yahoo announced falling revenues and a quarterly loss of $99.2m on Tuesday - from April 19, 2016
Then how could it bend the facts to meet their bias?
But that's not what you're suggesting - doubling down by doing more of what they've been doing. This assumes that what they're doing has some useful foundation you can find and build on.
There are essentially zero Yahoo users, especially of any service that's remotely monetizable. People who use Yahoo are people whose ISP set it as their default homepage ten years ago.
You can hear the fail in their words. They're talking about retaining users, not offering value. They still want to be a portal (ie the base of every action you take), something users didn't want when it was new.
That's the business legacy you'd have to reverse before you stop producing negative-value, let alone actually produce something that may actually be valuable.
My understanding is that's the one thing that is not up for sale these days, and that all relevant discussions are regarding the spinoff of their core web businesses.
I don't know if tumblr is profitable, but it has many users.
edit: whoops this was already mentioned a number of times in other comments.
I fail to believe that Yahoo, minus Ali Baba and Fantasy sports and similar bits, is actively NEGATIVE value. It might be poorly run and have the poor actions you're talking about. (okay, it DOES have the negatives you mention).
That doesn't mean what's there "should just die" - it's a business opportunity to take that and use it profitably.
I don't know how to quantify what that's worth, but I can't imagine it's nothing.
= 50 million visitors/month https://siteanalytics.compete.com/tumblr.com/
Yahoo Answers is still a big useless SEO machine
= 50 million users/month https://siteanalytics.compete.com/answers.yahoo.com/
Yahoo Sports is very popular from what I understand
= 12 million users https://siteanalytics.compete.com/sports.yahoo.com/
Yahoo Finance, ditto
= 14 million visitors/month https://siteanalytics.compete.com/finance.yahoo.com/
Yahoo News, ditto
= 20 million visitors/month https://siteanalytics.compete.com/news.yahoo.com/
Yahoo mail is still doing alright isn't it?
= 50 million users https://siteanalytics.compete.com/mail.yahoo.com/
Flickr is still ranked pretty high on Alexa but on a definite decline: http://www.alexa.com/siteinfo/flickr.com
= 15 million visitors/month: https://siteanalytics.compete.com/news.yahoo.com/
* Yahoo Answers
Quora ( 100M users  ) and Stack Exchange is now the default question & answer sites.
* Yahoo News and Yahoo Sports
Google news and search ( 44% of Google searchers scan the news results  ) already provide these features. I used to use Yahoo Live Scores, but now I use Google.
* Yahoo mail
Gmail ( 1B users  and grew 100 Million users just last year )
Google Photos ( 100M users in 5 months  )
It seems like Google Finance is losing  as they see it as part of search but it appears there is a need for a good separate product here. Tumblr looks to be a runaway success ( 227 million registered accounts, more than double the number of accounts a year prior and more than 37 million unique visitors ), no match for Wordpress yet ( WordPress.com records 126M unique visitors per month  ), but the social aspects looks to work in Tumblr's favor.
> Google news and search ( 44% of Google searchers scan the news results  ) already provide these features. I used to use Yahoo Live Scores, but now I use Google.
Yahoo Sports is a lot more than just sports news and scores. The traffic is heavily driven by fantasy sports, which Google doesn't have.
If they would just maintain what they've got and stop swinging for the fences - turn into something like the Apache Foundation was in their early years - they'd provide a lot of value for a lot of people.
Alexa ranks Yahoo News the 8th most popular news source on the Internet. More popular than Fox News, BBC, and WSJ.
Yahoo Mail is still used by millions.
I can see Microsoft's goal, add it the Bing group and give Bing the portal as well as it already has all the search traffic. Not so clearly on Berkshire though, breaking it up works if you can get it at the right price. I could also see IAC wanting to play, they could use a portal property to link all their front ends together.
They are speaking publicly, but they "aren't authorised" to do so.
But unauthorized. That's the point.
At a certain level, you don't really need a website.
Edit: Apparently GEICO is wholly owned by BH
Unless Alibaba comes with the purchase at a discount, or someone wants to acqui-hire whatever talent hasn't already fled, an acquisition doesn't seem even remotely sensible.
A few quick checks suggest that Yahoo's searches-per-day traffic is still decent, at 12.4% of the market (2.2 billion searches/month); perhaps redirecting that to some competing search engine might be worth it for a cheap enough price.
Yahoo doesn't have a search engine. Yahoo search is Bing. So that revenue stream has already been tapped and I'm sure is a multi-year contract.
What generally scares Buffet from tech is that the price of tech stocks is greatly inflated to reflect expectations of future growth. Buffet is very skeptical of inflated expectations of future growth.
But I do not think there is any great expectations of future growth in yahoo. In fact many analysts say that if you strip out the valuable asian assets, the value implied by the market for Yahoo's US business is about zero or even negative.
So the answer is that Yahoo is not really a tech stock anymore, but the traditional definition of that term. At least it is not priced like a tech stock.
If the value implied by the stock price is zero or negative, then even buying the company and selling off the office furniture nets you a tidy profit.
More realistically, it's very likely that if a company has negative value -- ie, that someone would pay you to take it off their hands -- then it is severely undervalued.
Or severely fucked. Every company on the verge of bankruptcy skirts with negative equity value.
As for enterprise value, there are oil E&P companies trading below zero today. One must consider the costs of diligence, maintaining the asset until oil goes up and environmental clean-up. The economic value of some companies is questionable.
On Yahoo!, there is a difference between minority-stake investing and buying companies. Some managers are terrible. A hundred million dollars put in a box, put in a corporation, and handed to them is worth zero if they can't be replaced before the cash has been burnt.
It's terribly sloppy logic that led to this, as a pass through Yahoo!'s balance sheet demonstrates. "Long-term Investments", which I presume includes their stakes in Alibaba and Yahoo! Japan, is listed as $34B (not the $38B in the article). Adding all other assets gets to a grand total of $44.1B. However, that is gross asset value, not book value. Now you have to take off the liabilities. Yahoo! apparently has $13 billion in deferred income tax on the books. It has about $13B in other liabilities, cutting its book value to about $28.4B and giving Yahoo! a price/book ratio of 1.21, not 0.81 as that analysis erroneously concluded.
You can't just compare gross assets to stock price and expect anything meaningful, and you sure as hell can't compare the values of a couple cherry-picked assets that sum up greater than the net equity and claim the entire rest of the business is worth a negative amount. I find it pretty shameful that Bloomberg actually published that clickbaity bullshit.
Yahoo!'s problem right now is not that their traditional businesses are unprofitable. Their problem is the massive liabilities they have on their books.
Probably precisely why Buffet is interested in it.
The PE on Technology Select Sector SPDR ETF is 19 : http://finance.yahoo.com/q?uhb=uh3_finance_vert&fr=&type=2bu...
Based on this measure, tech and general market are priced similarly.
But if you look at Facebook or Twitter, it is hard to tell why they're selling for that amount.
I myself avoid index funds which over-invest in tech because I believe we're in a bubble.
I could be wrong on all of this though, I'm just a dev, not an industry expert : )
Compare P/E (last full year numbers):
To that end, while working on the web team we added a Konami code to the QL website that would change the entire site to Comic Sans. I just checked and sadly that Easter Egg got lost in a redesign.
Also interestingly: Bain Capital is in the running. In the past, Yahoo has used Bain Capital as consultants to reorg, restructure, etc. It would almost seem like a conflict of interest, since they are acutely familiar with the innards of Yahoo.
Edit: as /u/mcmoose75 mentions below, "Bain Capital" and "Bain Consulting" (the one I was thinking of) are two separate entities.
I could be wrong. I do go to Yahoo news everyday and it's not a bad service. It's fun to think about what the world would be today if Yahoo acquired Facebook LOL.
I would use Yahoo! Sports to seriously go after ESPN, which is turning into a turdpile of garbage that's worse than TMZ. I'd literally troll them and get some extremely technical content as well as the fun stuff. Monetize with fantasy, tickets, live stream, schwag, etc.
Rinse and repeat with other news sectors. I'd find about a dozen niches and build out some aggregators with trending stuff - basically DrudgeReport style aggregators for each niche - awesome headlines and all.
Eventually, steer some content towards consumer facing products, and build out a shopping engine for the ones that are consumer-related.
Would this be the next Facebook or Google? No. But it'd be profitable as hell and with the right no-holds-barred content team in each niche, it'd once again become intertwined with American culture. It would "never" die, and it'd be a true fighter for the first amendment.
I don't deal with apps so I'd hire one of you guys to be my #2 for that side of the game.
Buffett and Gilbert you know who to call when you want this company to become relevant again.
What you're describing would never make money. Aggregator sites are among the worst things you could ever attempt if your goal is to make money, which is why so many of them fail and or produce mediocre business outcomes.
Drudge is a unique outcome that is nearly impossible to repeat - which is why nobody has been able to replicate it after all of these years. Its popularity occurred solely due to the Clinton impeachment scandal and two decades of brand / trust building when it comes to editing.
Having a juggernaut of articles and content in business / finance is worth very little. You could combine TheStreet.com, Marketwatch.com, Quartz, Seeking Alpha, Fool.com and Business Insider all under one umbrella and it would be worth less than a billion dollars and barely make any money. It would be a complete waste of time and wouldn't move the needle on Yahoo's business.
I'm talking about web-based content first. Anyone who follows sports knows that there is a wide open gap ready for someone to take a swing on actual sports coverage. ESPN has turned into a steaming pile of trash. You want more articles on Johnny Manziel, have at it ESPN. We're gonna cover real sports on my Yahoo.
The better broadcasting play is to get into streaming / broadcasting for new sports. Be it eSports, rugby, lacrosse, and any scrap of basketball you can get your hands on -- NFL is going to collapse in the next generation or so (ask any Gen-X parents if their kids are allowed to play football and you'll understand why) -- so just give up on getting rights to the current powerhouse sports for the time being.
> What you're describing would never make money.
Killer content always makes money when you know your demographic and don't sell your soul too much. I wouldn't emphasize the aggregators, those would be portals. The trick is that much of it would be re-written on the actual Yahoo site by real journalists once something gets hot. Then you no longer give the traffic away.
> It would be a complete waste of time and wouldn't move the needle on Yahoo's business.
This is because you don't know how to monetize. Content isn't the end game, it's the easy advertising. Yahoo! Finance is an under-utilized tool. The content on a powerful domain like that would be used to inexpensively gather new users into the profitable toolset - the end game could be to build out a trading platform, for instance.
LOL at Yahoo's needle, BTW.
There's your issue.
Are there many success stories of Silicon Valley companies leaving the Valley?
Though the prospect of bringing a large tech co to Detroit is nice, Gilbert and his people are very unpleasant to work with. They pay lip service to the importance of technology but generally don't respect tech people, or know how a real tech company operates. Not to mention their questionable morals (politically manipulating the State of Ohio so they could have a casino monopoly, instant mortgages, reverse mortgages, etc.).
Firstly, the Bizdom incubator was a mess. Very poorly run. Not a single successful business came out of it. No actual founders taught students. Just ex-QL people or trusted friends; the only thing in common was that none of them had ever started or ran a startup. Most of the startups that gained any traction did so by selling to Gilbert's other companies rather than proving that they have a real market - lots of incest going on.
On top of that, some entrepreneurs got straight-up screwed. At a minimum, by highly abusive investment terms (such as Bizdom owning 67% of the company and having the ability to modify operating agreements at will) - and to top it off, multiple founders in their system have had their ideas ripped off by Gilbert's people.
That's on top of their ridiculous real estate ventures. Such as offering startups hip, beautiful office space in Downtown Detroit - in exchange for a percentage of their company (I hear it's over 10%, with very few people biting). The startups that went through their investment funnels were "heavily encouraged" to get space there.
My guess is that if he gets Yahoo, he'll open up an office in Detroit, try to QL-ify it (i.e. make it a sales company that is a fairly close parody of Glengarry Glen Ross), it will flounder for a few years, and either get sold again or just die.
I really wish Detroit had a better advocate.
If I was saddled with a dinosaur like Yahoo I would split it up and try and get some cash then rename what was left and I still think you would just be delaying the inevitable. The Yahoo name has about as much value as Netscape or Novell. It pretty much says outdated, failed technology company that has been overtaken by the competition.
Maybe they have calculated they could break Yahoo up and sell the pieces for more than they bought as a whole?
Otherwise I'm out of ideas.
Facebook could have gone the same way but they've largely stayed vigilant about being relevant to people.
AOL remained fixated on catering to their existing customer base and trying to grow high-margin dial-up revenues. They squandered their capital even harder than Yahoo did, as there's not a single AOL branded anything that's a best-of-breed. Everything about the company is second rate. Consider this: They bought the internet's darling company, Netscape, and could not make a nickel off of it or even keep the brand alive in any useful sense despite investing heavily in a series of increasingly bizarre reboots.
Facebook, by comparison, will not hesitate to incorporate features from other competing products if they think they're going to drive the platform forward and has made a number of strategic purchases like Instagram and Oculus to help cement their relevance.
I'm not even a fan of Facebook, but I admire their tenacity and their incredible ability to survive in an industry littered with the wreckage of previously huge social empires.
except this one link. what should I think of that? why that single link is different than ever other nytime.com links?
After it closed the chatroom services I almost quit using yahoo.