‘Judgment Day’ for Yahoo and CEO Marissa Mayer

The end of an era approaches, as disastrous earnings reports herald the likely end of Yahoo, once an Internet search engine and email giant. Yahoo has been trudging to the corporate chopping block for months, so it’s no surprise that post-mortems began popping up over the weekend, before the axe officially came down.

“The 21-year-old company, once a dominant force in Silicon Valley, is now close to sale, with final bids due Monday and observers expecting that the firm will be broken up,” the Mercury News reported on Sunday. “Experts say Yahoo committed fatal errors in the fast-paced, hypercompetitive tech world — it didn’t innovate fast enough, clung to a stale business model and failed to blow its own horn.”

On the latter point, UC Berkeley professor Jo-Ellen Pozner faulted Yahoo for failing to “keep the public engaged” in their story, stubbornly refusing to manufacture any “hype” that might have offset falling stock prices, while competitors like Google and Facebook dominated the headlines.

It’s hard to imagine what kind of hype might have sweetened the bitter pill of Yahoo’s financial statements, as its market share plummets to 1.5 percent of global digital advertising revenue. Revenue suffered one nasty quarterly drop after another, with the latest earnings report expected to show sales of just $1.081 billion, down from $1.24 billion last year, according to CNN Money. The transition to mobile computing was especially harsh for Yahoo, which was unable to establish much of a foothold despite acquiring dozens of smartphone startup companies.

Kara Swisher at Recode says it’s “likely to be the last Yahoo earnings release ever,” and joins many other observers in wondering what the future holds for CEO Marissa Mayer:

Will she cut out as soon as Yahoo announces whichever of the remaining bidders prevails, as in one scenario that has been discussed among insiders at the company? While the idea of Mayer leaving quickly could be unusual, some speculate that she is even now planning her soft landing, which might see the high-profile exec in a more low-key place for a while.

Or, as is more likely, will Mayer stick around and help the victor with the transition — if they want her help at all, that is — making sure that at least some of her many efforts were not for naught? Under such a plan, whoever buys Yahoo might even let Mayer stay on its board, even if she no longer had real influence.

Among the most unusual ideas I have heard over and over is that there will be no sale and Mayer will continue to rush into the breach with her latest turnaround plan. Sources inside the company said she has been actively managing the company of late, despite the approaching endgame.

Swisher quotes one bidder who declares, “the Mayer era at Yahoo is pretty much over,” and judges that it ends “with a whimper and not a bang.” Among those whimpers is the unpleasant truth that Yahoo’s stake in another company, China’s Alibaba, is its most valuable remaining asset.

Forbes makes a strong case that Alibaba would be the most logical buyer for what remains of Yahoo:

If Alibaba and Yahoo were to come to terms on a sale of the latter to the former, it would eliminate all sorts of headaches for Yahoo shareholders. Alibaba would pay a certain sum for Yahoo core properties, Yahoo real estate, Yahoo patents, Yahoo’s 15% investment in Alibaba itself and Yahoo’s 36% or so investment in Yahoo Japan. Alibaba could do an all-cash deal or maybe a cash plus stock deal and end up gaining a strong foothold into North America and thereby killing two birds, maybe even three with one stone.

Gone would be the complicated tax and legal ramifications of Yahoo finding ways to dispose of the investments in Alibaba and Yahoo Japan. In one fell swoop, all parties could walk away pretty happy including Alibaba, SoftBank and, most of all, long suffering shareholders in Yahoo.

What does Alibaba get in return?

Most importantly, Alibaba gets to buy back 15% or so of its own shares in one single transaction thereby giving a significant boost to its own earnings per share as a result of reduced shares outstanding. Secondly, Alibaba gets almost a billion monthly users across the world to transition over and cross-sell to its various properties. Yes, there might be some overlap in users but Alibaba can adjust the price of core Yahoo accordingly.

Mayer, a veteran of Google who came aboard with great fanfare, is either a visionary who did her best to play some very difficult cards, or an overhyped celebrity hire who drove Yahoo into the ground, depending on who you ask.

CNN Money says this week brings “judgment day for Marissa Mayer,” as analysts believe Yahoo’s new owners are likely to “slash thousands of jobs, cut down Mayer’s investments, and ultimately push her out of the CEO spot.”

Yahoo’s former interim CEO, Ross Levinsohn, tried to go easy on Mayer in a CNBC interview, but tacitly conceded that turning the troubled corporate asset around will probably involve vivisecting it and reversing almost everything Mayer has done. Levinsohn thought Verizon and AT&T would be ideal buyers.

In the Mercury News piece, Forrester Research analyst Shar VanBoskirk said Yahoo lost focus, with Meyer following a business model from the Eighties or Nineties to create a “closed system” of captive users.

“The Yahoo brand doesn’t stand for anything anymore, which is their whole problem. They said, ‘We are going to be your all-purpose portal,’” said VanBoskirk.

That user base is still very large – almost a billion total, with top-ranking viewership for Yahoo News and Finance – and retains good feelings about the directionless Yahoo brand, but the company can’t seem to increase its base or monetize the traffic effectively.

A great deal of time and money has been spent on the effort, without much to show for it. “In 2013, Yahoo hired news anchor Katie Couric for more than $6 million a year and raised her compensation to $10 million last year. This year, Yahoo shuttered seven digital magazines and laid off more than 300 California workers as it seeks to cut 15 percent of its workforce by year’s end,” the Mercury News reports.

No need to worry about Mayer, if her “judgment day” has indeed arrived. It’s going to be a very soft judgment. She’ll float down from tech Olympus on a vast golden parachute, valued at $55 million by most estimates… a titanic severance package for the CEO who killed a once-mighty company.

Not everyone is happy about that – lower-ranked workers laid off after Yahoo gets carved up and sold on the auction block certainly won’t be – but as one bidder philosophically mused to Recode, cashing Mayer out “is less expensive than a lot of other things are going to be.”