In Antoine de Saint-Exupéry’s “The Little Prince,” the narrator begins his tale with a description of an unusual snake that he drew as a child: it was narrow at both ends and bulging in the middle, because it had swallowed an elephant. Grownups, tragically lacking in imagination, kept mistaking the misshapen snake for a hat.
For the past couple of years, Yahoo has been like that snake. Nearly a decade ago, Yahoo invested in the Chinese Internet company Alibaba, and, over time, Alibaba grew so big and successful that Yahoo’s portion of it became worth far more than the rest of Yahoo’s business. Yahoo, in other words, had more elephant in it than snake: when Yahoo’s shares kept rising, making it among the most valuable tech companies in Silicon Valley, it was because Alibaba was doing so well. Alibaba went public last month, forcing Yahoo to sell much of its stake—which has made Yahoo’s own limited value more apparent. Without its Alibaba holdings, or a share of a joint venture with Softbank, in Japan, Yahoo’s value would essentially be negative.
None of this is unknown to people who are familiar with Yahoo. Its traditional businesses of selling display and search ads has been in decline for years, and there has been no concrete evidence that the company’s many acquisitions—of Tumblr, for instance, last year—have done much good. Not long after the Alibaba I.P.O., a managing member of the activist investment firm Starboard Value LP, Jeffrey C. Smith, underscored this with a letter to Yahoo’s C.E.O., Marissa Mayer, criticizing “the poor performance of Yahoo’s core business” and imploring her to scrap her strategy and replace it with a different one, devised by Starboard. (Starboard’s plan involves fewer acquisitions—though it pushes for a purchase of A.O.L.—and more cost cuts.)
On Tuesday, in her most significant public presentation since Alibaba’s sale, Mayer, was expected to put forth a proposal for reinventing Yahoo’s business. The anticipation grew when, after the markets closed, Yahoo posted revenue and earnings that beat analysts’ expectations. When Mayer appeared in a video feed to discuss the results, she was smiling. “We had a good, solid third quarter,” she said. But, as Mayer began to talk about Yahoo’s future, it became clear that she had no new turnaround plan. Instead, she seemed determined to persuade investors that her snake really is a hat after all—that even without Alibaba Yahoo can remain one of Silicon Valley’s most valuable firms simply by continuing to do what it’s been doing.
Mayer has a reputation for flashiness—last year, Vogue photographed her reclining upside down in a chaise longue—but her approach to managing Yahoo hasn’t been particularly exciting. Since arriving at the company, in 2012, Mayer has been trying to make it more valuable by purchasing smaller firms that she hope can bring Yahoo better talent and products and a bigger audience—and, in turn, more revenue. As far as strategies go, it’s not particularly innovative. And Yahoo hasn’t supplied much information about how its acquired companies have done, which has made it vulnerable to criticism that the acquisition strategy may be a failure. Still, on Tuesday, Mayer made it clear that she’s not going to change course. “Acquisitions have not been a choice for Yahoo in my view but, rather, a necessity,” she said.
To bolster that case, Mayer released some new figures. For the first time, she disclosed a bit about the financial performance of Tumblr—by far the largest and most important purchase made during her tenure, representing more than two-thirds of what the company has spent on acquisitions. Specifically, she revealed that Yahoo expects it to bring in revenue of more than a hundred million dollars in 2015.
This isn’t a particularly impressive figure for Silicon Valley—but it could start helping Yahoo make up for the declining parts of its business. Yahoo’s revenue from display ads—one of its biggest and oldest businesses, along with search ads—was four hundred and forty-seven million in the quarter, down five per cent from a year ago. With Tumblr, Mayer is focussing on a fast-growing type of display advertising known as “native” ads—the kind whose appearance matches that of the site where they appear. Sales from those ads are approaching eighty million dollars a quarter, she said. Mayer also noted that Yahoo’s mobile business grew big enough for the company to separately report its financial performance; mobile ads brought in two hundred million dollars in revenue in the quarter, about seventeen per cent of Yahoo’s total revenue, she said.
Yahoo’s executives, including Mayer, have positioned themselves as engineers of a comeback and have bristled at turnaround ideas that sound to them like those meant for a business whose fortunes are falling. “The management team is not there to manage a declining company,” Brian Wieser, an analyst at the research firm Pivotal, told me in September, when I wrote about the possibility of an A.O.L. purchase. On Tuesday, Mayer echoed this sentiment herself, telling investors, “We all came here to return an iconic company to greatness.”
Yahoo’s earnings report, and Mayer’s comments, certainly helped ease some investors’ worries about the company’s existing strategy: Yahoo’s stock price was up five per cent in trading on Wednesday. Still, the performance so far—which includes an increase in revenue from a year ago of only one per cent—is not, by Silicon Valley standards, particularly impressive. Google’s revenue last quarter rose twenty per cent; Facebook’s was up sixty-one per cent. For all of Mayer’s evidence that her existing strategy may be working better than people had believed, she still has a way to go. What she needs may be a little more imagination.
