Tuesday, April 21, 2015

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Executive Departures, ‘Drip’ Layoffs, Search Costs and Ad Slumping: Welcome to Post-Alibaba Yahoo

Yahoo CEO Marissa Mayer has her work cut out for her.
Yahoo CEO Marissa Mayer has her work cut out for her.

Media

Is today the day when Yahoo CEO Marissa Mayer finally has to face the music as Yahoo releases its first-quarter earnings results, which Wall Street is expecting to be less than stellar?
Probably not!
Because despite the continued overall lackluster performance of its core business, it will likely remain a charmed life for her and the Silicon Valley Internet giant for the rest of this year. This is still largely because Yahoo has, over the past few years, been protected and girded by the billions upon billions of dollars in Asian assets that the company has held for almost a decade.
The money has made for a cushy landing for Mayer and has kept the shares of the company elevated since she arrived three years ago. That will likely continue until the planned spinoff of China’s Alibaba Group stake takes place later this year; Mayer and Yahoo CFO Ken Goldman announced the much-anticipated transaction during Yahoo’s last earnings call.
Investors cheered the move, because it meant Mayer was not hoarding the money for Yahoo’s use. This was a big worry of shareholders, who have become less than sanguine about how the current leadership of Yahoo has been managing the still-troubled business.
Which is why today, they will be looking hard for some answers from Mayer about what post-Alibaba Yahoo will look like.
And, so far, Wall Street does not seem heartened. Analysts are estimating declines in earnings and revenue (18 cents and $1.055 billion) in the quarter, the kind of anticipated results that has sent the stock down nearly 12 percent for the year, even as other indices have risen.
And they have good reason to be concerned, since signs are already emerging that life post-Alibaba is going to be much more challenging on a number of fronts and all at once. Here’s a quick rundown of what investors need to think about as the results come in later today:

Executive Musical Chairs


As reported, Yahoo recently lost one of its most experienced execs, Mike Kerns, as others move around, jockeying as new configurations of power form. Kerns, who came to the company in 2006 with the acquisition of Citizen Sports, had a solid reputation both inside and outside of the company. He had reported directly to Mayer as SVP of the homepage and other verticals like video. But numerous sources said the longtime entrepreneur had been itching to leave for some time and had become especially weary of infighting with other execs, most especially Yahoo CMO and media head Kathy Savitt.
Sources inside Yahoo said to expect a lot of movement inside the company over the next months as Mayer rejiggers her favorites, such as the ascendance of SVP Adam Cahan and top execs from Flurry, the mobile analytics company Yahoo bought.
The fate of other top execs is less clear, including: Long-suffering Tumblr founder David Karp, who was once promised independence by Mayer, but no longer (Hey Dave, freedom’s just another word for nothing left to lose); Americas head Ned Brody, who seems to have joined the witness protection program, according to those in the ad market who have not seen him in a very long time, after he lost much of his job to Americas ad sales head Lisa Utzschneider and waits around in what insiders describe as a fire-me-and-pay-me standoff with Mayer; ad tech SVP Scott Burke, who recently lost a lot of his portfolio to the very smiley Prashant Fuloria of Flurry, who is now SVP of ad products.

Water Torture for Employees


One thing Mayer has been good at is cutting staff in a way designed to shield the critical cost cuts from any required reporting or media scrutiny. She had already started doing this early in her tenure with controversial performance reviews that were essentially stack-ranking of employees within Yahoo’s units.
For those who are not familiar, Mayer’s “Quarterly Performance Review” system forced managers to rank some of their staff with designations of “Occasionally Misses” and “Misses,” even if it is not the case, via what is essentially a modified bell curve. Those with lower reviews over several quarters could be fired.
Now, said numerous employees in emails to me, Yahoo has been letting go of staff more recently in what many characterize as “drip layoffs,” in which five to 10 people are let go in a department over the company and over time. In that way, the layoffs escape any need for Yahoo to make any announcements or report those departures to regulatory bodies (this is sometimes required depending on the size of a layoff).
While it might be important to let go of underperforming people, something many have urged Mayer to do, the method of firing has been negatively impacting morale as some employees have been moved out to make way for those coming to Yahoo via acquisition. Because of these purchases, in its last quarter Yahoo reported a small year-over-year increase in staff to 12,500 employees. It will be interesting to see that number later today, because some on Wall Street would like to see Mayer cut as much as 15 percent of its employee base.

Searching for Search


But, even if Mayer has been culling certain parts, according to many sources, she is aiming to increase staff and costs with a very aggressive move into search. Mayer has already been doing this, girding up Yahoo’s mobile search efforts via acquisition and focus. But sources said she is envisioning a much larger effort now that she has managed to shift the longtime and much-troubled search agreement Yahoo has had with Microsoft.
Earlier this week, Yahoo reported some details of those changes, in which it will only use Microsoft algorithmic and paid search on 51 percent of results. That means Yahoo can serve the other 49 percent, either by itself or via partners.
That partner, most think, would be Google, where Mayer made her career involved in its search product. But doing such a deal — which has been negotiated before several times and abandoned in previous regimes — is problematic due to the increased pressure on Google over its overwhelming search market share. The search giant is under pressure in Europe in this arena, although U.S. regulators have largely given Google a pass. If it were to take over big parts of Yahoo’s search, Google might find that regulators in D.C. would seek to block such efforts.
There is no question investors would favor a Google deal, because it would yield a lot of dough to Yahoo at little cost. But insiders at Yahoo said Mayer seems determined to do search herself, both in mobile and on the desktop, despite some internal disagreement about the company’s ability to compete and effectively sell its very small market share in search.
She has already done a pricey deal with Mozilla to be the default search for that browser, but it is a small addition to market share. A bigger prize Mayer has talked about is to grab default search on the Apple iPhone, which currently favors Google. It’s a longshot, of course.
But Mayer seems willing to take on the challenge, despite cost estimates of hundreds of millions of dollars to get there. According to one source, when she was asked how Yahoo’s much-decimated search technology could beat Google and others, Mayer replied: “We’ll have a better algorithm.”
I like a spunky exec! In fact, it’s very “300” (note to readers: The Spartans got massacred by the Persians, although their sacrifice was noble!).
But if I were to bet, based on the insiders at Yahoo I spoke to, Mayer wants to go for it.

The Ad Shortfall


There is no one inside or outside Yahoo who expects anything but another weak quarter. Display ad sales continuing to decline even as new much-touted initiatives in mobile, video, native and social advertising — awkwardly dubbed MaVeNs by Mayer, though I am down with it — have not made up the difference yet. While such efforts are necessary and growth is strong, it’s still small potatoes.
I also did a poll of ad buyers recently and most of them big and small say the same thing: Yahoo’s current ad products are unimpressive and not a must-buy. “They keep pushing me digital magazines,” said one major ad buyer to me recently. “It’s not new or innovative compared to what is happening at Snapchat or Facebook.”
More reliance on programmatic advertising by Yahoo strikes a lot of marketers as non-creative, although many are interested to see what the company offers at the upcoming NewFronts presentations by Internet companies to ad buyers in New York next week.
“Maybe they will surprise me,” said one marketer. “But I doubt it.”

The Silver Lining


There are still some positives to consider, mostly related to what did not happen to Yahoo that could have.
Most important was that Starboard Value, the activist shareholder that has been strafing the company, did not attack via a public proxy battle and by putting up its own slate of directors. Had that happened, Mayer would have been on the receiving end of a lot of noisy negative attention that would have occupied her time.
And, even as it sells off its Alibaba stake and returns that money to shareholders, Yahoo still has another lucrative Asian asset — a multi-billion-dollar stake in Yahoo Japan. While the unwinding of that asset is much more complex, it is still a valuable nest egg for a rainy day.
So, I guess in Yahoo’s case for now, let it rain.













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