Over the years, I’ve had precious few good words to say about Yahoo, especially since the company brought in Google hotshot Marissa Mayer a few years ago to turn things around. She has manifestly failed at this, most recently with her firing of COO Henrique de Castro after he’d been on the job for just 15 months. On Mayer’s authority, Yahoo paid a kingly sum to woo de Castro away from Google, where he’d been director of display advertising. Now he’ll walk away from his Yahoo job $100 million richer, all because of Mayer’s clouded business judgment.
How, then, to explain the relentless ascent of Yahoo shares? They’ve been on a rampage for nearly two years and currently sit within easy striking distance of record highs For starters, we can credit/blame the tireless stock-peddlers on Wall Street, where the motto has always been: Too much of a bad thing is never enough. There is also the fawning, if mostly undeserved, press that Mayer has always received — and presumably will continue to receive from the likes of Vogue, Allure and Wired. Such publications never cease to embarrass themselves with the telling and retelling of the by-now dog-bites-man success story of a feminist icon who seemingly has it all — a woman who makes $30 million a year and gets to bring her dog to work. When she is finally ousted by Yahoo’s board for non-performance, or perhaps incompetence, the story will get turned on its head: What Were We Thinking!?
Few Second Acts
The idea that a corporate whiz from one dot-com can move to another and replicate his or her success is a notion that I’ve never been able to swallow. There have been few second acts in the dot-com world, after all. Demonstrably, once a company enters a death spiral, it is not a question of re-inventing whatever isn’t working, but rather of moving on to an entirely different product/service/business model. A good example is Zynga, a game-apps developer that moved into some fancy offices when the company was red-hot a couple of years ago. Facebook was their main customer, but when Facebook shifted its social-networking tactics ever so slightly, Zynga was instantly left out in-the-cold.
Similarly, Yahoo failed to keep abreast of two formerly new kids on the block, Google and Facebook, and has been playing catch-up ever since. But how? To succeed, Yahoo would need to leap ahead of both companies, presumably with whatever Next Big Thing is about to set cyberworld, um, a-Twitter. Clever as Marissa Mayer might be, her corporatist imagination falls far shy of Steve Jobs’-level genius. And it would take no less than genius to see the future of business, advertising and the Internet so very clearly that one could stake out a dominant corporate position in it beforehand.
Based on the foregoing, one might infer that Yahoo shares are a fetching short at these heights. In fact, I would instead recommend covered writes, since the stock is not about to plummet any time soon, even if and when Marissa Mayer is dumped. Yahoo’s saving grace, at least for the foreseeable future, is its commanding stake in the shares of Alibaba, a company best described as China’s answer to Amazon and Google. That may be enough to keep Wall Street’s cockles warm, but it hardly warrants giving Mayer the benefit of the doubt forever.