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Is Yahoo Right to Give up the Game?

There have been rumours that Yahoo, the 20-year-old internet portal no longer in its prime, is re-evaluating its business model in the light of its dwindling success. It’s thought the web giant could even be considering selling the web side of its business off, following unsuccessful attempts by CEO Marissa Mayer to regenerate its core offering.

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[Image Courtesy of Pieter Beens / Shutterstock.com]

The sun hasn’t yet set on Yahoo. The company is sustained by its valuable stake in thriving Chinese juggernaut Alibaba, which is continuing to dominate the internet retail sector spanning both business and consumer markets. Yahoo has not managed to revive its traditional internet activities, and many argue it makes sense to call time on attempts to recapture past glories in this area. In fact, even the rumour that Yahoo planned to stop chasing this dream offered a significant boost to the share price.

It’s likely that the plan could see the multinational’s email platform, Yahoo Mail, news and sports sites, search engine and its social media platform Tumblr.com broken out into a separate company likely worth around $4billion, or simply sold off as parts to the highest bidder. This move could help avoid a damaging tax bill from its current massive market capitalisation, based on the Alibaba stake which is thought to be worth around $30 billion. But none of these rumours have yet been confirmed by Yahoo, who has declined to comment.

Marissa Mayer

The performance of CEO Marissa Mayer is under increasing scrutiny as she has failed to reverse the decline in the traditional web side of Yahoo’s business. Many accuse her of failing to woo advertisers away from Google and Facebook Ads, and she was heavily criticised in 2014 for her management strategy. This year hasn’t been any better; several key figures have departed the organisation and stocks have fallen throughout the year.

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[Image Courtesy of Mon’s Images / Shutterstock.com]

Mayer has always faced tough competition from Google and Facebook but she hasn’t realised the confidence the markets initially placed in her upon her appointment. Some of her decisions have been questionable: She banned Yahoo staff from working from home but telecommuted herself during her pregnancy. Many market commentators feel she overpaid when the company acquired the Tumblr platform, which brought in users but not profits. Perhaps too much was expected of Mayer, whose arrival after a 13-year stint at Google was much celebrated. At the start of her time at Yahoo, investors generally seemed to have a great deal of confidence in her leadership. Now the same investors are accusing her of failing to adapt Yahoo’s strategy to the realities of the current environment.

One of the main accusations is that Yahoo hasn’t found a strong sense of direction or purpose under Mayer’s leadership. Investments the company has made under her direction have failed to pay off in terms of revenue. Major projects such as a video platform took big losses and an investment in a video advertising platform has also failed to generate profits to justify the investment. The fact remains that without the blue chip Alibaba stake, Yahoo would have zero market cap at this point in time.

So is the likely sell-off of Yahoo’s traditional internet business side a wise idea? The markets certainly seem to think so – shares are up 7% based on this rumour alone. It seems Yahoo has finally decided to stop throwing good money after bad and accepted they are no long able to dominate on the internet. It’s a tough call for this former behemoth of email and search but it may be the case that private equity or technology companies may be better able to direct the future of Yahoo’s email and mobile content than Yahoo itself.