[Author was long YHOO and BABA at time of writing]
Carol Bartz was hired as the CEO of
Marissa Mayer was hired as Yahoo’s CEO in July 2012. As of this month, she’s been on the job for 2 years and 9 months.
Compare and Contrast: Bartz vs Mayer | FindTheCompany
Towards the end of Bartz’s tenure, many (including me) were highly critical of her. A large number of people were calling for her head. Today, even though Starboard Value LP has been outspoken in their criticism of Mayer, there is not a similar populist groundswell of support for replacing Mayer.
Why? Has Mayer done a materially better job of turning around Yahoo’s core business than Bartz?
Let’s review a series of metrics relating to the core business under their watch.
In the year prior to Bartz’s arrival, Yahoo (in 2008) did $7.2 billion in revenue, $13 million in EBITDA, had 1.37 billion shares outstanding, and $3.5 billion in cash. On January 14th, 2009, when Bartz was hired, Yahoo’s stock price was $12.26.
For the year ended 2011, Yahoo did $5 billion in revenue, $800 million in EBITDA, had 1.27 billion shares outstanding, and had $2.5 billion in cash. On September 6, 2011 – the day Yahoo’s board fired Bartz - Yahoo’s stock price opened at $12.52.
The stock increased 2.1% over Bartz’s tenure while the Nasdaq had gone up 57% over the same period.
Bartz spent virtually no shareholder money on M&A during her tenure with the exception of buying interclick for around $267 million. She sold back some other businesses (hotjobs, zimbra) so the net of it was that nothing was spent on M&A while she was CEO.
When Bartz left, Yahoo still owned 40% of Alibaba. At the time, it was assumed by analysts that Yahoo’s stake was worth $9 billion.
So, overall, just looking at Bartz’s numbers, you would conclude:
- The core business’s revenue declined under her watch
- But the core became much more profitable than compared to when she arrived
- She spent a little on M&A and buybacks but not much
- The real problem – at least for shareholders – was that Yahoo’s stock price was flat for her tenure at the same time that the Nasdaq was booming.
Now let’s examine how Yahoo’s core business is doing under Marissa Mayer.
The day that Mayer was hired on July 16, 2012, Yahoo’s stock price was $15.69. Today, it is $45.63, a 3x increase. Over that same time, the Nasdaq is up 71%. So, right away, you would assume that Yahoo’s core business has improved under Mayer. But that’s not true.
Here are the numbers:
- Yahoo’s revenues in the last 12 months is $4.62 billion – down 8% since Bartz left.
- Yahoo’s EBITDA in the last 12 months is $682 million – down 15% since Bartz left.
- Its share count is now under 1 billion, aiding the stock price.
- It has $8 billion in cash
- It has spent more than $2.5 billion on acquisitions including Tumblr, Flurry and the various acqui-hires
- Yahoo now has significantly reduced its stake in Alibaba to 384 million shares worth (at today’s market price) $33 billion; had Yahoo retained its full stake in Alibaba when Bartz owned it (and just a reminder that Masayoshi Son of SoftBank never sold a share of Alibaba over the last 5 years), that 40% stake would be worth $86 billion today – that’s not on Mayer, but it’s on the Yahoo board because that decision was made between the time when Bartz left and Mayer arrived
Is Yahoo’s core business better off today than it was under Bartz? It’s smaller considerably. Is it better? Mayer’s spent a lot of money on M&A (more than $2.5 billion vs. net zero for Bartz) but the business is still smaller. You would think a dollar of M&A would buy you at least a dollar of revenue, but a dollar of M&A for Mayer has not done anything to reverse the negative trends in revenue and EBITDA we’ve seen since she arrived.
Yahoo’s core business under Bartz did get smaller on the top line (down 30% from ‘08 to ‘11), but the company’s profitability improved significantly. Both metrics have sagged under Mayer’s watch.
Another way of looking at the performance of Bartz and Mayer is to compare the sum-of-the-parts valuation of Yahoo under both and what that suggests the perceived value was on the only part of Yahoo they controlled – the core business.
When Bartz left, Yahoo’s market cap was $15.9 billion. It had $2.5 billion in cash. Their Yahoo Japan stake was worth $4.2 billion (assuming it got fully taxed). And their Alibaba stake was worth $6.1 billion (fully taxed). That means the core business was implied to be worth $3.1 billion under Bartz at the end net of those other assets.
Today, Yahoo’s market cap is $42.4 billion. It has $8 billion in cash. Their Yahoo Japan stake is worth $6 billion fully taxed. Their Alibaba stake is worth $33 billion and won’t be taxed as it will be spun out in the Fall. This suggests the core business is implied to be worth negative $4.6 billion.
We can quibble about whether that spun out tax-free Alibaba stake owned by Yahoo should get a 10% discount when it happens, but the math is pretty unequivocal: Yahoo’s core business was worth $3.1 billion when Bartz was pushed out the door by the board and it’s now worth minus $4.6 billion today under Mayer. That’s $7.7 billion in value which has been lost in Yahoo’s core business. That’s not all on Mayer, of course. Yahoo’s board deserves blame as well.
I’m not arguing here that Mayer should be fired today by her board 2 years and 9 months after being hired. I’m simply asking the question did Bartz deserve to be fired 2 years and 9 months after being hired?
If you believe Bartz did deserve to be fired, why doesn’t Mayer also deserve to be fired right now? In many ways I would argue that Mayer’s performance has destroyed more shareholder value ($7.7 billion) during her tenure than Bartz did. Mayer has thrown money around on a bunch of assets which have not objectively done anything to improve Yahoo’s finances.
Of course, Mayer would say she hasn’t had enough time. If you agree with that view, then it must also be true that Bartz didn’t receive enough time to execute her plan.
The bottom line here is that Yahoo’s core business was troubled before Carol Bartz showed up. It was a business struggling to move from a huge revenue (and profit) stream it had from almost 1 billion Americans checking their mail every day on desktop. It’s struggled to find a way to grow an equally large revenue (and profit) stream from mobile as fast as its desktop revenue was melting away.
It’s unfair for Mayer to suggest that Yahoo wasn’t thinking about mobile until she showed up in July 2012 to tell a bunch of naïve children the way the world worked as if she was reading them a bedtime story. In this interview in May 2009, Bartz talks about how Yahoo needs to makes its mobile services as compelling for users as its desktop services.
Looking back on the way things have played out for Yahoo, my conclusions in looking at the records of both CEOs are that
(1) Mayer has gotten way too much of a pass from investors and the press because of the soaring value of Alibaba in the last 4 years. The core business has lost almost $8 billion in value and she should really start justifying how her turnaround plan is going to take hold. She has yet to get any tough questions from investors or the press and, as a result, hasn’t answered them. Mayer of course does anything in her power to avoid tough questions. She grants press interviews only sparingly and because of that gets the reporters to play ball with her with easier questions.
(2) Bartz was run out of town too quickly (and I criticized her a lot in her last year). She was bright. She had a computer science degree – unlike her successor. I would take the team she put together around her vs. this one that Mayer has assembled. Bartz had 10 or so direct reports and empowered them to run with the ball. Mayer has 30 direct reports and wants to get into the nitty-gritty of all decisions (even to the extent of personally designing the new corporate logo – when Rome is burning). Bartz’s business started to double-dip in 2011 and that, with the lag in the stock price compared to Nasdaq, did her in. Bartz wasn’t perfect. But, if we’re being totally honest, in hindsight the lag in the core business under either Bartz or Mayer had nothing to do with what the stock price would ultimately do. Alibaba saved this stock – not Mayer. Whether the core business itself can be saved is still up for grabs.
(3) If you want to pin blame on lost shareholder value as it relates to Yahoo, you can’t have this discussion about Bartz and Mayer without also discussing the Yahoo board that agreed to whittle down its 40% stake in Alibaba down to 15% while SoftBank never sold a share. The board of Roy Bostock and Patti Hart removed Bartz, approved selling down the stake, and hired Scott Thompson (with no background check apparently, as it would have flagged Stonehill College) in a mad cap year which left a double-dipping core business dipping further. Sure Mayer’s core business is worth nearly $8 billion less today than when Bartz was removed, but that Bostock/Hart board had an asset which would be worth $86 billion today had they kept it. They got less than half of that value out of it. Of course, they spun it like the had to do it. Someone forgot to tell Masa.
It’s been 2 years and 9 months since Marissa Mayer started as Yahoo CEO, the same amount of time Carol Bartz got. Both should be judged fairly for what they have accomplished during their tenures.
