Unlike many of today’s Silicon Valley tech giants, Yahoo (ticker: YHOO) came from humble origins. The company was founded in 1995 as a small hobby start-up of two Stanford graduate students, Jerry Yang and David Filo. In an effort to help people find websites more efficiently within categories like government, science, news, entertainment and business, Yang and Filo set out to build an online directory—little did they know what their “online directory” would become.
As we know today, their hobby became something much more valuable. Within a couple of years, Yahoo became the top navigational tool for those who adopted the Internet as an informational resource. This enabled the company to survive the 2000 tech bubble and eventually provide other services including news, email, photo archiving, groups, chat and classified ads. Yahoo Sports, Yahoo Finance and Yahoo Tech sites soon became hubs for sports, finance and tech news for many across the globe.
At its peak in early 2000, Yahoo was worth nearly $255 billion! Yet here we are today, and Yahoo is for sale with a valuation of just $34 billion. CEO Marissa Mayer also announced in February 2016 that 15% of the work force would be laid off, with the high probably of more to follow. What’s more, offers on the table for Yahoo seem reluctant at best.
So, What Went Wrong?
You can essentially take your pick from a multitude of issues. Of course, the most obvious was its inability to compete, on virtually any level, with Google for search and Facebook with social media. But, there was also the revolving door of CEOs (six in a nine-year span), lack of founder involvement in products, a lack of innovative drive, and perpetual loss of top talent. All of these, arguably, played a notable role in Yahoo’s decline.
The company also failed to evolve with the times. Looking at a company like Google (ticker: GOOGL), which is now Alphabet, they were able to effectively expand beyond search and build successful smartphone software and services for email and word processing. Similarly, Amazon (ticker: AMZN) has grown beyond e-commerce and has found ways to keep the company relevant in new media spaces by adding services like streaming-video. Meanwhile, Yahoo treaded water, concentrating only on its core ideas and refraining from betting on new experiments. It’s no wonder their future is in serious doubt.
So, Who Will End Up Buying Yahoo?
A number of companies have indicated interest, but most appear unwilling to commit unless they get hugely discounted sale prices—which may ultimately be the end result. Names that stand out among interested parties include media companies like Daily Mail and Time Inc. (ticker: TIME) and Verizon (ticker: VZ). In addition, technology companies like Google (ticker: GOOGL) and Microsoft (ticker: MSFT) have also shown subtle interest. A number of private equity firms like General Atlantic, TPG and KKR are also considering participation in the bid.
Bottom Line for Investors
Today, Yahoo is still one of the most recognized brands in the world and has an Internet audience surpassed only by Google and Facebook. A management overhaul may help Yahoo stage a comeback, but history has shown that it’s been a failed strategy several times over. What may be more likely is that a company or private equity firm buys Yahoo and breaks it up, separating the good parts from the bad—meaning, a further dissolved workforce and perhaps the end of Yahoo as a publicly traded company.
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