Alibaba IPO brings riches and dangers to struggling Yahoo

 

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The Independent Online

When Alibaba, China’s answer to eBay and Amazon, lists in New York today, it could be a make-or-break moment for Marissa Mayer, the boss of the fellow internet group Yahoo.

Alibaba’s listing is set to be the biggest ever and Yahoo plans to sell down its stake in the Chinese giant from 22.5 per cent to 16.3 per cent as part of the float, raising up to $8bn (£5bn). That should be good news, but as the investment becomes less significant, Yahoo’s US business will come under increasing scrutiny – and that could spell trouble for Ms Mayer.

It is estimated that half of Yahoo’s value comes from its Alibaba investment, with much of the remainder resting with its cash reserves and a stake in Yahoo Japan. Its core US business carries almost no premium. “It’s going to put much more pressure on the Yahoo board... because the performance is not going to be masked by what’s happening on the other side of the world,” said Ian Maude at the researcher Enders Analysis.

Since Ms Mayer arrived from Google in 2012, Yahoo shares have increased almost 180 per cent. But the rise has been chiefly been down to the increase in value of the Alibaba stake, with Mr Maude joking that Yahoo has been an “Alibaba tracker fund”.

Ms Mayer has failed to reverse the trend of falling revenues, and Yahoo’s last quarterly results, in July, were her worst since taking the helm. Brett Harriss, an analyst at the New York research firm Gabelli said there was anger among investors, estimating that she has “a year” to turn things around.

As well as the poor financial performance, Ms Mayer’s management style has faced criticism. Commentators were bemused by her decision to scrap working from home, while an unflattering Vanity Fair profile suggested she had an “imperious style” of working. Employees are said to be unhappy, with some taking to an internal message board to express anger at Ms Mayer’s introduction last year of a new staff ranking system that reportedly led to up to 600 being fired.

The cumulative effect of poor performance and negative stories means the clock is ticking for Ms Mayer.

However, the Alibaba float also presents an opportunity to turn things around. “It’s a positive,” says Mr Harriss. “The first benefit is there’s a big influx of cash and the second is going to be ease of valuation for the rest of the company now.”

Yahoo has pledged to return half of the proceeds of the float to shareholders, but the remainder could be put towards deals. Last year, Ms Mayer spearheaded the takeover of Tumblr for $1.1bn, seen by many as a coup.

However, Mr Harriss said: “So far, her M&A has not been effective. When she came into the company, it was generating $1.7bn of [underlying earnings]. She spent $2bn on acquisitions and now it is going to generate $1.2bn. It seems like it’s destroyed value.”

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