Monica Schipper/Getty ImagesMarissa MayerWhen Marissa Mayer took over as CEO, Yahoo's stock was trading at $15.92. Today, it's trading at $51.07.
When Marissa Mayer took over as CEO, Yahoo was generating $4.5 billion in annual revenue. It's expected to do $4.41 billion in revenue this year.
So, how did the stock triple while revenue fell?
Anybody that's been paying attention knows the answer: Alibaba.
Yahoo owns a nice chunk of Alibaba, the Chinese e-commerce giant that's trading at ~$274 billion right now. When Mayer took over, Alibaba was a private company valued at ~$30 billion.
Scott Thompson, the CEO that preceded Mayer, sold half of Alibaba's stock back to Alibaba. As part of that deal, Alibaba agreed to IPO by 2014.
As Nicholas Carlson explains in his new book on Mayer and Yahoo, that provided "air cover" for the next two years, which happened to be Mayer's first two years as CEO. Yahoo's stock appreciated as investors woke up to the fact that Alibaba was a beast of a company and it was going to go public in a few years. Yahoo was the best way to get exposure to Alibaba.
Investors didn't really care all that much about what Mayer did as CEO. As long as she didn't infuriate Alibaba, or prematurely sell shares, she was free to do whatever she wanted. This allowed her to do the following:
- Avoid giant job cuts to slim the company.
- Spend a billion on Tumblr.
- Go nuts with acqui-hires that had little-to-no coherent logic other than just getting warm bodies in the door.
- Spend millions on Katie Couric, even though it's unclear if Yahoo is getting anything in return for that big spend.
- Hire, fire, and massively overpay COO Henrique De Castro.
Investors didn't care. Alibaba made life great for Mayer. The stock went up because of Alibaba.
But now that Alibaba is public, it's making life miserable for Mayer.
Yahoo's failure to do anything with its core business has left it vulnerable to angry shareholders that only care about squeezing every dollar out of Alibaba. They don't trust Mayer.
Earlier this year, activist fund Starboard decided to launch an attack on Yahoo. Starboard wants to spin out Yahoo's core business and merge it with AOL. The remaining Yahoo would basically be a holding company for Alibaba and Yahoo Japan shares.
Now John Jannarone at CNBC is reporting, "several large Yahoo shareholders say they are effectively in a negotiation with CEO Marissa Mayer over what she will concede and when. The ideal outcome, those shareholders say, would be similar to something envisioned by activist investor Starboard Value, which took a stake in Yahoo earlier this year."
On the company's last earnings call, Mayer and her CFO Ken Goldman said Yahoo has "the best tax experts in the country working intensively on structures to maximize the value to our shareholders of our remaining stake in Alibaba."
That made investors happy, but it also set the clock ticking. Yahoo shareholders are now expecting an answer from Yahoo how it's going to capitalize on its Alibaba stock without losing half of the money to US government.
If Mayer can't deliver a good plan by the next earnings call (which should be in January) "there would be a riot" according to a large shareholder who spoke with CNBC.
This is not why Yahoo hired Mayer. She was hired to breathe life into Yahoo's products and reinvigorate the brand. But instead of working on that, Mayer is now haggling with shareholders and tax experts over how to deal with its Alibaba shares.