But the Sunnyvale, Calif., technology firm with 12,500 workers now finds itself facing the surprising prospect of being sold for parts, valued more as scrap than as a whole, with some investors declaring that Yahoo’s core business of search and email is essentially worthless.
With Yahoo’s board wrapping up three days of meetings Friday, activist shareholders are trying to force the company to sell off everything except Yahoo’s outside investments in technology firms such as Alibaba. That’s where almost all of Yahoo’s $33 billion market cap resides, they say.
Yahoo would be hollowed out, transformed from titan to shell.
“It’d be very odd if the company known as Yahoo loses what most people think of as Yahoo,” said Jan Dawson, chief analyst at technology research firm Jackdaw.
The fight for Yahoo’s future highlights a clash between Wall Street and Silicon Valley, showcasing how financiers’ patience with technology’s innovations has its limits. It also serves as a warning about the risks of going public for fledging unicorns -- those private tech companies with at least $1 billion valuations.
If Yahoo can’t control its fate and gets gutted, just imagine what might happen to a lesser company.
Silicon Valley’s relationship with Wall Street has become “warmer” in recent years, due to investors helping fund private tech firms, said Lise Buyer, an IPO consultant with Class V Group in Silicon Valley.
But the same can’t be said for activist investors.
“Most folks in Silicon Valley still view activists as piranhas looking to take capital that could be invested in innovation and put it in their own wallets,” she said.
Yahoo has been dogged by antsy investors before. The board rejected Carl Icahn’s push to merge with Microsoft in 2008. In 2011, investor Dan Loeb’s moved to get on Yahoo’s board and inserted the leadership he wanted.
The company was vulnerable as it struggled to find its path to prosperity, whipsawing from one business strategy to another, cycling through several leaders along the way, analysts say.
Now, the company seems to have hit a fresh tipping point, brought on by a new player.
A hedge fund named Starboard Value bought a stake in the company last year. Managing member Jeffrey Smith struck a gracious tone in a letter sent to Yahoo’s chairman in August.
“We have enjoyed our interaction with you,” he wrote.
In November, just three months later, Smith’s tone had hardened.
“We have grown increasingly frustrated with your unwillingness to accept our help,” he said in a letter to Mayer. “Despite our numerous conversations and meetings, and notwithstanding your willingness to provide us an audience, you have been reluctant to respond or adapt to the realities of the current environment.”
On Thursday, Starboard released a statement, noting, “It is imperative for Yahoo’s board to understand its fiduciary responsibility is to the shareholders and act as proper stewards of shareholder value.”
Starboard wants Yahoo to sell its core business and keep just its 16.5 percent stake in Alibaba, valued at $35.2 billion, and its 35 percent stake in Yahoo Japan, valued at $8.6 billion.
Yahoo’s search engine, its email and sites such as Flickr and Tumblr would be picked up by some outside suitor. Analysts said the list of potential buyers would be broad -- Verizon, IAC Interactive and the Chinese Web company Tencent all might be interested.
A sale would mark the undoing of the 20-year-old tech company.
But, Smith and other argue, it also would unlock plenty of value.
Yahoo wanted to avoid such a pivotal showdown when it hired Marissa Mayer as chief executive in 2012. She was lured from a high-profile job at Google. She carried a mandate to transform the company.
It was never seen as a simple task. She reportedly has compared her situation to the one faced by Steve Jobs when he returned to a sluggish Apple. Jobs took five years before Apple began to rebound with the release of the iPod.
Mayer is now midway through her fourth year. She bought Tumblr for $1.1 billion. She struck a partnership to make Yahoo the default search engine on Firefox. To many analysts, she has nibbled around the edges and taken several small steps.
But many believe she has failed to deliver a reinvention.
“She’s had quite the long honeymoon period,” Dawson said, “but she’s just got very little to show for it.”
“I think now we can say she was a bad choice,” said Brian Wieser, senior analyst at Pivotal Research.
He added that anyone in her role faced long odds: “It was mission impossible.”
Yahoo’s problem is the online world seems to be moving away from the company’s strengths. Email is dying. Search is changing. Mobile is increasingly important. And Yahoo has struggled to make money like Facebook and Google do from the huge amounts of traffic it sees.
“That’s one of the most baffling things about Yahoo,” Dawson said.
AOL, another once legendary tech name, faced similar challenges. But it moved from online search portal to a firm with advanced advertising technology. Earlier this year, when Verizon bought AOL for $4.4 billion, mostly for that technology, it was widely viewed as a coup for AOL’s chief executive Tim Armstrong.
But Mayer was not installed in her job with the expectation of selling off Yahoo.
Yahoo’s Alibaba stake was supposed to provide her cover to experiment with the company’s fortunes.
Now, that stake is driving the move to shortcut her plans.
“It’s ironic,” Wieser said.
Even if the activist investors succeed in splitting up Yahoo — and some analysts think they would easily win a proxy fight -- success is not guarranteed. The stakes in Alibaba and Yahoo Japan could be hurt by tax and accounting challenges. Yahoo’s core business might flourish in the hands of new owners.
“It really is unclear what the best path is,” Wieser said.