The vultures are circling.
Over the past few days, BoomTown, TechCrunch, and CNET have all been writing about the freefalling share price at Yahoo! (Nasdaq: YHOO).
It's easy to see why. Last night's close of $17.75 isn't just a fresh 52-week low. You have to go all the way back to October 2003 -- when Yahoo! shares were being surrendered for a split-adjusted $17.50 -- to find the last time that the online portal has traded this low.
Yahoo! is far from the only company nearing multi-year lows. However, the way the media has been shining its bright light on Yahoo! since last year's $31 buyout bid from Microsoft (Nasdaq: MSFT), shareholders deserve some answers.
You know the questions. Where's my money? Why are you still leading this company? If Microsoft offered $23 a share next week, would you put us out of misery?
Lights! Camera! Fraction!
If you're CEO Jerry Yang or Chairman Roy Bostock, you don't want the media attention. After all, the two barely escaped with the board seats after last month's shareholder vote.
Unfortunately, the scrutiny is inescapable at this point. A buoyant share price is the only way to silence the critics, and Yahoo! just doesn't have the catalysts, earnings power, or winning lottery tickets to make that happen.
This makes it unlikely that Bostock or Yang will retain their posts for too much longer. Waiting until next year's annual shareholder meeting would be masochistic. Now that the financial media is pitching a tent in the shape of Yahoo!'s share price, this is about to become a blood sport.
There's an outside chance that the two may save themselves, but they'll have to save Yahoo! along the way. If Yang and Bostock aren't able to lift Yahoo! shares out of the teens by the end of the year, they're toast. If they can't get the stock back into the mid-$20s by next summer, they're shark bait. If they miraculously get Yahoo!'s stock into the $30s, bronze busts will be made in their likeness.
Sure, that's easy to say, but can Yahoo! executives really gain their way out of this sentence? Of course. Let's explore some of the possibilities.
From Bostock to go stock
This isn't hopeless. Take the AdSense deal with Google (Nasdaq: GOOG). If it goes through, Yahoo! expects to generate as much as $450 million in incremental operating cash flow. Yes, it's humbling for Yahoo! to admit that someone else is better at monetizing its search traffic, but it's a foregone fact at this point. Finalizing the deal may go a long way to giving Yahoo!'s stock a boost.
The other quick fix would be to spin off its Asian investments. This is a diminishing asset at the moment. The company's 10% stake in South Korea's Gmarket (Nasdaq: GMKT) has held up well this year, but the same can't be said for its more sizeable investments in Yahoo! Japan and China's Alibaba.com. When Microsoft went public with its buyout plans, Yahoo! countered that it was too low, since it devalued the roughly $10 a share it had in Asian investments. By the end of June, the company's second quarter conference call had the cumulative value of those three stakes at closer to $7 a share.
It's actually worth a bit more, since Alibaba.com is just one part of AliBaba Group that has gone public, but the company would also take a tax hit on selling the assets. The solution that has often been proposed is spinning it off.
Either way, this is one reason why investors need to know that Microsoft coming in at $28 today would be the equivalent of the $31 offer that Yahoo! surely regrets passing on at this point.
The third lifeboat strategy is to create a distraction. Yahoo! is still a cash-rich moneymaking machine. If it wanted to, it could go shopping. It can beef up its ad presence with ValueClick (Nasdaq: VCLK), tack on Web traffic through Marchex (Nasdaq: MCHX), and buy into a lucrative interactive marketing company like Bankrate (Nasdaq: RATE).
Treating its greenbacks like pinata candy may upset some shareholders, yet even they may concede to give the company a little more time to see if the acquisitions fit as promised.
The fourth survival tactic is the hardest one: earning the share gains organically. It would really change the market's outlook on Yahoo! if it delivered a head-turning quarter, but don't wait up for that. Executives wouldn't be leaving in droves if the future was bright.
So that's where we stand and Yahoo! strands. It's not too late to save Yahoo!, but swigging a shot glass filled with pride has to be the first step. The second step is up to Yang and Bostock.
They better hurry, though. The lynch mob outside is getting louder, angrier, and stronger.
Some other recent Microhoo dealings:
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