Coverage: Yahoo back in the Spotlight

Yahoo is still coming under pressure from investors, particularly about what the company will do with its windfall from the initial public offering of Alibaba. CEO Marissa Mayer may make her thoughts known when the company reports earnings this week.

Over the weekend, The Wall Street Journal had this story by Douglas MacMillan about Yahoo’s need to refresh its strategy:

Yahoo Inc. chief Marissa Mayer will seek to fend off a challenge from activist investor Starboard Value LP this week by detailing her plan for turning around the struggling Internet business.

When the company shares its third-quarter results on Tuesday, Ms. Mayer is expected to outline cost-cutting efforts and give new details about how the company is evaluating possible acquisitions, said a person who was briefed on the plan.

Yahoo is considering acquiring one or more large technology startups with some of the $5.8 billion it made from the initial public offering of Alibaba Group Holding Ltd., according to people who have discussed possible deals with Yahoo representatives.

A large acquisition could help Ms. Mayer generate significant new streams of revenue at Yahoo, where sales have declined in four out of the past five quarters.

For the quarter ended Sept. 30, analysts expect the company to report revenue, excluding commissions paid to partners, of $1.05 billion, a 2.8% decline from the same period a year earlier.

Acquiring a rising competitor in the world of content or advertising technology could also bolster the chief executive’s pitch to marketers, which provide the bulk of Yahoo’s revenue but which have in recent years moved more of their budgets to Google Inc. and Facebook Inc.

Leslie Kaufman wrote for The New York Times that Tumblr is trying to integrate more with TV shows, but no one is certain how well it’s working:

Yahoo is betting that Tumblr’s alliances with popular television shows like “The Voice” will help drive its growth. Still, 16 months after Yahoo paid $1.1 billion for Tumblr, the company’s investors are questioning the success of the acquisition.

The company has not disclosed much about Tumblr’s finances since the purchase, but the independent online research firm eMarketer says that while Tumblr’s 24 percent growth rate is faster than that of any of its social-sharing competitors, including Pinterest or Instagram, its audience remains the smallest. (Tumblr counts 17 million registered users compared with 40 million for Pinterest, the next smallest site.) Yahoo also has a shrinking share of the digital display ad market relative to Facebook and Twitter.

Investors have grown impatient. Jeffrey C. Smith of Starboard Value wrote an open letter in September criticizing Yahoo’s investment strategy and saying it was not returning value. Without mentioning Tumblr specifically, Mr. Smith said that Yahoo’s recent strategy of focusing on acquisitions had not worked.

Marissa A. Mayer, Yahoo’s chief executive, has been slow to make any big strategic moves relating to Tumblr, in part because she when she bought the site she reassured loyalists that she was not looking to shake thing up. But one push for Tumblr has been to focus on “second-screen engagement,” the entertainment industry’s term for how television fans interact with their favorite programs on digital devices.

The Wall Street Journal said that investors are stepping up pressure on Mayer:

The pressure on Ms. Mayer intensified last month, when activist investor Starboard revealed it had taken a stake in Yahoo and sent a letter to the CEO. In it, Starboard pushed the company to reduce costs, explore a combination with AOL Inc. and consider splitting its core business from the Asian assets.

The investor also called for Yahoo to halt its acquisition strategy, which it said has cost the company $1.3 billion and “clearly not delivered value to shareholders.” Besides blogging platform Tumblr, for which Yahoo paid $1.1 billion in early 2013, Ms. Mayer has bought more than three dozen small startups. Starboard contended that these startups are losing Yahoo “a considerable amount of money” and “have failed to deliver material revenue growth.”

The two sides plan to meet for the first time later this month, according to people familiar with the matter. Yahoo’s deadline for proxy proposals—the investor’s most likely avenue for putting its proposals to a shareholder vote—are in early January 2015.

Despite successes, including inroads made by Tumblr, Yahoo has a lot of questions to answer when it presents results this week. Yahoo is going to have to buy its way to relevancy with acquisitions around mobile and other emerging technology. But history is littered with bad acquisitions, particularly in technology, so Mayer is going to have to figure out how to integrate any acquisitions, make them profitable and ensure that Yahoo remains relevant to advertisers and consumers.