Yahoo has $6 billion in its wallet thanks to Alibaba’s IPO last week.
But investors showed little faith in Yahoo’s core business, sending the stock plummeting. An article in Businessweek went so far as to value Yahoo’s business at zero.
That means CEO Marissa Mayer needs to go shopping.
“I think she’ll do a big deal. She has to, there’s no choice,” said Michael Kassan, CEO of strategic advisory firm Medialink. That is, unless she wants to give all the money back to shareholders.
An acquisition in the mobile or video ad tech space would be the best option for Yahoo, said Brian Wieser, senior research analyst for the Pivotal Research Group.
“Yahoo has a lot of cash, and is seemingly in need of ad tech assets, because they don’t have time to develop them internally,” Wieser said.
Mobile and video are already areas where Yahoo has made acquisitions, through a series of mobile-focused acquihires, such as mobile gaming company Loki Studios, and video distribution platform RayV.
Its most prominent recent acquisition, however, was mobile analytics shop (and network and exchange, depending on whom you ask) Flurry, which Yahoo bought in July.
The Flurry acquisition might be a good first step, but TUNE partner and CEO Peter Hamilton pointed out that the acquisition still has to be nurtured and integrated into an ad tech stack. “This is no small task,” he said.
This sets Yahoo even further behind Facebook, Google and Twitter. Those three have all taken great leaps in mobile, observed Michael Oiknine, CEO of the mobile measurement company Apsalar.
Google has AdMob, Twitter has MoPub and Facebook has its Facebook Audience Network (FAN). Meanwhile, Oiknine said, “Yahoo is still nowhere.”
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But Yahoo isn’t just lagging in its mobile offering; it’s lagging in its nominal ad stack as well. It introduced its self-serve platform Ad Manager Plus this year, which enabled segmentation and RTB buying.
For many ad platforms, however, these features are mere table stakes and Mayer said, during Yahoo’s Q2, the technology simply “gets it to parity” with other ad tech solutions already on the market.
As for Ad Manager Plus’ performance, rumors aren’t great, especially for a product that was supposed to help with Yahoo’s turnaround.
“The reviews I have heard of Yahoo Ad Manager have not been overwhelmingly positive,” Wieser said.
Consumer Focus
Ultimately, while Yahoo has room to build value among marketers, industry experts also saw opportunity for Yahoo to build value among consumers.
Kassan speculated a Yahoo acquisition could focus on entertainment, pointing out the company’s failure to buy video portal Dailymotion in 2013.
Yahoo has certainly invested heavily in content since Mayer’s arrival. It signed personalities like Katie Couric and the New York Times’ David Pogue to produce content for Yahoo’s platform. It touted shows like “Community,” which is continuing on Yahoo.
Wieser agreed with Kassan: “There is room to make investments in content,” especially to help give Yahoo top-tier advertising inventory. Both agreed Yahoo’s closest competitor, AOL, has been doing a better job of marrying content with a technology stack and already has many of the features (RTB and segmentation) Yahoo needs.
AOL also has scale and adoption, which Yahoo lacks. This is why it’s possible Yahoo might buy a consumer-facing platform (at least, another one, following its $990 million purchase of blogging platform Tumblr).
“I do think it is time for Yahoo to make a consumer play, whether in hardware or communications/social,” said TUNE’s Hamilton, pointing out that it “aligns strongly with their past as a major player in email messaging.”
“To me, a major messaging platform would be an epic next step in the company’s evolution and immediately provide more consumer mindshare in comparison to their ad tech cousins like Google and Facebook,” Hamilton said.
Finding The Right Sellers
The right acquisition for Yahoo won’t be just about product, but people, Wieser said. “Buying a business that has traction won’t be sufficient. A retainable management team is probably the most important thing” Yahoo should look for in an acquisition.
It already made $50 million mistake with former COO Henrique de Castro, a Google alum who was supposed to build up Yahoo’s ad business. He was let go, with a generous severance package, after less than two years on the job.
Finding staff who want to stay on with Yahoo could be hard, especially as the company struggles to turn around its business. “I don’t see people standing in line to work for a company that’s rudderless,” Kassan said.
“They need an injection of additional talent, and not everyone would want to or have the chemistry to work with Yahoo,” Wieser said. Still, he noted, Mayer’s fan base could attract talent.
But the fanboy/girl quotient might not represent the demographic Yahoo wants to employ. “When you are an entrepreneur, regardless of your price, you’ve got to be more excited to talk to Facebook and Google or Twitter than Yahoo,” said Oiknine.
On the other hand, money is money and, if Yahoo goes shopping, its biggest asset will be the cash it brings to the table.
“I’ve got to say, it would not be exciting to be a part of that organization. Of course, everybody has their price,” said Oiknine.
From Hunter To Hunted?
The business press has wondered if Yahoo could in fact be an acquisition target. If its assets truly are worth zero, it could be a bargain buy.
Many sources don’t believe it’s probable that Yahoo will be acquired.
Some thought “Alibaba would buy Yahoo as a rounding error,” Kassan said, adding that it would be unlikely.
An activist investor could purchase Yahoo if it thought it could reduce Yahoo’s tax obligation, which is costing Yahoo billions. But if that were an option, it likely would have happened by now, Wieser added.
Parsing what’s going on at Yahoo from the outside isn’t easy. “They’ve become an insular company. It’s hard to read the tea leaves,” Kassan said.
Allison Schiff contributed to the reporting of this article.
