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April 29, 2017

Newsonomics: Five Numbers That Show Why Yahoo is the Zombie Planet of the Internet

Planet Yahoo, a prominent feature of the early stages of the digital solar system, is imploding, soon to fade into the history of celestial internet bodies. It’s been a slow fade, even as some expected the sale of Yahoo’s core assets – its websites – today, on a quarterly earnings call. Yahoo executives only noted “expeditious” progress in the sales auction, which will likely end the 21-year-old business’ quick trip through its life cycle – its spin-off from the inchoate nebula of the early web, its growth by accretion to planetary scale, its explosive expansion and self-immolation in its own gaseous core and ultimately the decay of its orbit – could spawn business-school dissertations, even specialties, if it held any lessons worth heeding.

How do planets die? Consider this astronomical explanation and its easy application: “Jupiter, Saturn, Uranus and Neptune have all gone through this terminal finale. Their crusts have ruptured into massive gas giants and are largely huge hydrogen balls circling the Sun that inflated them. At one point the crust of each planet could no longer fight the internal explosive force of the hydrogen cores, and thus they were torn apart until the surface collapsed into the center of the planet’s core leaving a thick dense cloud of gas as its main exterior.”

 

First published at Politico Media

Follow Newsonomics on Twitter @kdoctor

 

That sounds almost like an obit longtime Yahoo critic Kara Swisher might write about her favorite company, and its succession of gasbag executives.
Today, Yahoo released what may be close-to-its-final quarterly financials, as an independent company. Even Mayer noted that the process of finding a new owner for Yahoo’s main businesses is weighing on its operating performance – with her oddly renamed MAVENS strategy (mobile, video, native ads, social) delivering year over year revenue down four percent. That’s right, the growth part of the Yahoo growth strategy isn’t growing.

What’s keeping down MAVENS? Amazingly, it’s video money-making that is furthest down, though for the overall market it is projected by the Interactive Advertising Bureau to increase by a compound annual growth rate of 21.9% through 2020.

The bidders for the company are led by Verizon Communications, and include AT&T, private equity company TPG, and perhaps other private equity bidders. “Final” bids have been submitted. Verizon – with its acquisition of AOL one year ago – remains the likeliest winner, given its more obvious advertising synergies and quest to become a “third choice” for advertisers frustrated at the emerging Google/Facebook duopolistic domination of the digital ad business. We laid out what the Verizon/AOL/Yahoo new combo will mean (”What does Verizon want with Yahoo?”) in April.

For now, it will suffice to say that whoever buys Yahoo has convinced themselves that they see lots of value as it looks to this distant constellation dying in a corner of the sky. That value – in sheer reach, in advertising potential, in bulking up to provide an alternative to the Google–Facebook ad duopoly – is real, but in quickening numerical decline.

These would-be buyers, especially the nuevo telcos, Verizon and AT&T, have come up with a price they can justify. Themselves mature companies, wobbling along on their own distant decaying business orbits, believe Yahoo retains billions in value.

Yahoo looks increasingly like a zombie planet.

Almost every indicator of its health is negative. Consequently, the winning bidder will soon find itself in a race against time itself to harvest the fast-diminishing extractable resources of this dying planet.

Let’s look at the key indicators of that devolution:

 

Revenues and earnings

Today, Yahoo announced the down numbers everyone expected. Still, they shock in scale. Apples to apples, as adjusted by Yahoo, revenue was down 15% this second quarter over the second quarter of 2015, the kind of decline, as I’ve noted, only otherwise experienced by dead-tree newspaper companies.

That drop followed a 11.3% drop in the first quarter. The company barely hit the billion-dollar mark in quarterly revenues, at $1.05 billion for this quarter. It would – if it were to remain independent – threaten to soon fall below the billion-dollar-a-quarter revenue threshold, a level it hasn’t seen since 2004. (It’s important to note here that a Yahoo accounting change, due to the “eleventh amendment to its Microsoft agreement” has increased the top-line reported revenue. Yet, its real revenue decline is well represented in the data.)

Essentially, Yahoo’s revenue had been treading water under CEO Marissa Mayer, who took on her job in July, 2012. Then, Facebook was taking in the same $4 billion plus in annual revenue as Yahoo was and is. Today, Facebook is closing in on $20 billion. Google brought in $42 billion in revenue, and today stands at $77 billion.
In this quarter, Yahoo announced $490 million loss in operations, 10 times greater than a year earlier. That’s its sixth consecutive down quarter.

Digital Audience

While the digital audience of the top 10 U.S. digital properties has grown about 14% over the last three years, Yahoo’s audience has actually declined. While still third largest, behind Google and Facebook, its loss is highly revealing.

Comscore pegs Yahoo’s loss during the last four years at about four percent. The graphic below tells that tale. While mobile user growth, the purple line, has grown (along with everyone else’s), it hasn’t made up for the overall loss of audience, in the top blue line.

Yahoo down in digital audience over four years, as shown below.

YAHOO DOWN DIGITAL AUDIENCE OVER FOUR YEARS copy
Market Capitalization
Today, Yahoo stands at about $36 billion in market value. Most of that, of course, is wrapped up in its Asian assets, represented by stakes in Alibaba and Yahoo Japan
Go back to just November, 2014 and it counted $49 billion in market cap. In 2006, the number was $57 billion. And, of course, March 2000: $140 billion.

With the overall market at new highs, and its “core value” apparently priced down to the $4 billion range, the investing world long ago marked down Yahoo, save for speculating on the Asian assets.

 

Workforce
In any acquisition, headcount reduction accounts for much early value assessment. “Synergies,” cry the merger proponents, and Yahoo’s acquirer will surely issue that early exclamation.

Analysts have forecast that a third or so of Yahoo’s remaining 9,000 employees will find themselves let go.

Even at 9,000, that workforce has shriveled from its June, 2012 height of 14,200. It is CEO Marissa Mayer, who took on her job in July, 2012, who’s done the cutting. Mayer today said the company had properly right-sized

As Facebook and Google greatly hired up, they both had a great sense of how the new employees could grow the business, Yahoo’s workforce declined, and that’s a major indicator of its strategic muddle.

 

Sales Per Employee
Legacy media company executives often find themselves amazed at how much revenue tech-based companies can wring out of their workforces. That’s, of course, about having the right workforce massively scale consumer-pleasing products. No surprise here, it is Facebook that now leads the way, in a smart report by Bloomberg’s Brian Womack. Facebook’s people bring in almost $400,000 each in the first quarter.

Alphabet–Google employees generated $315,000.

Yahoo? Just $116,000 per employee.

One reason it is Verizon may buy Yahoo and not the other way around – a notion that would not have seemed laughable just a few years ago – is that even a legacy company like Verizon generates more per worker than Yahoo. It rings in at $185,000, with its competitor (and fellow Yahoo bidder) AT&T, too, beating Yahoo, at $144,000.

That’s a double reflection of Yahoo’s mismanagement: both poor expense control and, too often, a reverse Midas touch in figuring out contemporary consumers.

 

Reputation
There’s that intangible of brand meaning – and credibility – to consumers. Here, too, we see the toll that Yahoo’s many product changes have taken.

According to YouGov’s latest BrandIndex, Yahoo lost a “statistically significant 1.2 points over the past year”. Of the top 45 digital companies, it has dropped to 24th, behind Google (4), YouTube (5), Facebook (9) and Twitter (20).

Overall, It’s a woeful tale of decline and loss. But all the numbers can’t describe the primary lesson here, especially for companies serving the information and entertainment needs of digital consumers. Yahoo’s greatest loss isn’t in any one of, or in the aggregation of, these numbers. Yahoo lost its way, its reason for being, and that unending existential crisis has produced all those much more countable signs of decay.

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