When Yahoo (YHOO) issues its latest earnings report after Monday’s market closes, it’ll probably be its last one as an independent company. And even though the numbers are likely to be miserable, most investors will probably ignore them and look instead for an update on the sale of the once-pioneering Internet company.
Verizon Communications (VZ), which got into the digital content business last year with its $ 4.4 billion acquisition of AOL, was seen as an early favorite to acquire Yahoo’s core assets, including its best-known properties such as Yahoo Sports and Yahoo Finance, which attract more than 1 billion users annually. According to Gabelli & Co. analyst Brett Harriss, Verizon can afford to pay a high price for Yahoo because of the savings it could gain from merging it with AOL.
Other Yahoo bidders are said to include AT&T (T); Quicken Loans founder Dan Gilbert, who has the backing of billionaire Warren Buffett; and private equity firm TPG. It’s unclear when Yahoo will announce the results of the sale. A company spokesperson couldn’t immediately be reached.
“Who knows?” said Harriss. “It could be today. It could be in a week. It should be sometime soon.”
Said Scott Kessler, an analyst with S&P Global Market Intelligence who rates Yahoo as a “hold”: “Yahoo has been the subject of so much speculation over the years, I think that people are going to get whatever they can get out of the (earnings) conference call.”
Shares of Yahoo have climbed more than 13 percent this year amid growing investor optimism about a potential buyout. The gain isn’t justified by the company’s earnings. Analysts are expecting the Sunnyvale, California-based company to report that revenue minus payments Yahoo makes to its partners fell 20 percent to $ 839.3 million. The company is forecast to lose 10 cents per share.
Yahoo has a had a rocky history for years as it lost its leadership in the search market to Alphabet’s (GOOG) Google and saw its core advertising business wither as online media consumption habits changed. Instability in the management ranks didn’t help matters. Several activist investors and some Wall Street analysts have called for the ouster of CEO Marissa Mayer, arguing that her tenure has been a failure. Yahoo’s problems, though, predate Mayer’s joining the company in 2011.
“If you put together a list of the last 10 CEOs that the company has had, you could probably blame them all,” Harriss said. “It’s just been a poorly run company.”
Seven permanent and interim CEOs have run Yahoo since 2007. Sales were little changed from 2011 ($ 4.98 billion) and 2015 ($ 4.97 billion) and are expected to drop to $ 4.5 billion at the end of this year. The company has lost money in three out of the past five quarters. Reversing these trends isn’t going to be easy, no matter who Yahoo’s new corporate parent turns out to be.
“For the first year or so, there was a lot of excitement,” said S&P’s Kessler of Mayer’s tenure. People then realized that “all of the excitement and all of the dealmaking” wasn’t going to be enough to turn the company around.
“There is just an incredible amount of work to do,” said former Yahoo interim CEO Ross Levinsohn today in an interview with CNBC. Levinsohn was part of a private equity group that considered making a bid for the company.
For one thing, Yahoo is bloated and inefficient. As Bloomberg noted, it lags its peers in the closely followed metric of sales per employee, generating $ 116,000, less than half the $ 315,948 that Alphabet earns and the $ 400,000 that Facebook (FB) reaps.
Earlier this year, CEO Mayer announced plans to slash the company’s workforce by 15 percent, or about 1,600, in light of a $ 4.4 billion loss. That was well under the 5,000-person reduction advocated by SpringOwl Asset Management, an activist investor that has targeted Yahoo. Analysts are expecting as many as 3,000 more job cuts. That would be nearly a third of the 9,400 workers Yahoo had at the end of the first quarter. Whoever does buy Yahoo will likely be inheriting a lot fewer employees.
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