Yahoo Posts Another Loss, Highlighting Hurdles for Potential Buyers--Update
July 18 2016 - 8:12PM
Dow Jones News
By Deepa Seetharaman
Yahoo Inc. on Monday posted a deep loss that underscores the
challenges facing a potential acquirer of the shrinking internet
business.
In what could be its last earnings report as an independent
company, Yahoo on Monday said its revenue, minus commissions paid
to partners for web traffic, fell 19% in the second quarter.
That is its sixth decline in the past seven periods and the
steepest slump under Marissa Mayer, who was named chief executive
almost four years ago to the day.
Yahoo's loss ballooned to $439 million as expenses surged 40%,
largely because of a $395 million write-down of Tumblr. The
blogging site, which Yahoo bought for about $1 billion in 2013, was
supposed to be Ms. Mayer's signature acquisition, but the company
has now written down $625 million of the value.
The earnings report comes on the same day as a third and
potentially final round of bids are due, people familiar with the
matter said. The monthslong process is expected to whittle a field
of dozens of potential buyers down to a handful of serious
contenders.
Yahoo aims to wrap up the auction by the end of this month, one
of these people said. On an earnings call, Ms. Mayer said Yahoo was
"deep into the process" of evaluating proposals and would update
shareholders when prudent. The remaining bidders are expected to
include Verizon Communications Inc. and private-equity firm
TPG.
Ms. Mayer sought to put a positive spin on the second-quarter
numbers. "Our businesses dramatically simplified and we continue to
manage costs while efficiently running the company," she said on
the call with analysts.
But sagging revenue and surging costs continue to threaten Ms.
Mayer's attempt to turn around the iconic brand, and could hurt
Yahoo's ability to fetch a high price for the core business.
Even excluding the Tumblr charge, costs would have risen about
9% despite Yahoo executives' pledge to rein in costs. Ms. Mayer
said Monday that Yahoo was operating at the "lowest cost structure
and smallest headcount" in a decade. Yahoo ended the quarter with
8,800 employees.
On Monday, Yahoo's shares fell 1% in after-hours trading to
$37.59.
Overall during the quarter, revenue rose 5.2% to $1.31 billion,
helped by a change in how the company reports revenue. Without that
change, revenue would have declined 15% to $1.06 billion. Analysts
had called for $1.08 billion.
The segment of Yahoo's business that Ms. Mayer touted would
drive the company's growth has slowed dramatically, though it
showed an uptick in the latest period. Revenue from "Mavens" -- a
financial metric the company introduced last year to track mobile,
video, native and social ads -- rose 26% to $504 million. That
compares with 6.8% in the first quarter, 26% in last year's fourth
quarter, 43% in the third period and 60% in the second quarter of
2015.
Yahoo said it ended the quarter with $7.67 billion in cash, up
from $7.1 billion three months earlier.
Yahoo's core business is difficult to value because the majority
of its roughly $36 billion market value is attributed to its
valuable stakes in Alibaba Group Holding Ltd. and Yahoo Japan.
Brian Wieser, analyst at Pivotal Research, estimates the core
business is worth about $3.5 billion. BGC Partners analyst Colin
Gillis estimated its value at $5.15 billion. Some earlier bids came
in as low as $3 billion, people familiar with the process told The
Wall Street Journal in May.
Yahoo's talks with possible asset buyers have dragged on for
months partly because of uncertainty over "what's in the deal and
what's not," according to one person familiar with the matter.
Among the unresolved issues are Yahoo's patents and real
estate.
Yahoo has set aside about 3,000 patents into a subsidiary called
Excalibur and hired an investment bank, Black Stone IP, to
separately auction it, though some bidders may want to buy it with
the core operating business.
Adding to the complexity, Ms. Mayer addressed concerns about a
search partnership with Mozilla that includes a provision allowing
the maker of the Firefox web browser to walk away if it doesn't
like Yahoo's buyer. In 2014, Yahoo agreed to pay Mozilla at least
$375 million a year to make Yahoo the default search engine on
Firefox.
She didn't comment on reports that Yahoo could be on the hook
for $1 billion in payments to Mozilla, but said "should Mozilla
choose not to [continue with Yahoo], our agreement does provide
mitigations, which would reduce our exposure," Ms. Mayer said.
Ms. Mayer said the company is at the right size today. "We could
revisit our strategy, and that might happen naturally during the
strategic alternatives process, but within products and services we
currently offer, we think this is approximately the right size
overall for the company," she said during the call.
--Dana Cimilluca, Thomas Gryta and Joann S. Lublin contributed
to this article.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
July 18, 2016 19:57 ET (23:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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