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Marissa Mayer has one shareholder-pleasing play left: Yahoo Japan

April 22, 2015, 12:05 AM UTC
The Davos World Economic Forum 2014
Marissa Mayer, chief executive officer of Yahoo! Inc., pauses during a session on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 22, 2014. World leaders, influential executives, bankers and policy makers attend the 44th annual meeting of the World Economic Forum in Davos, the five day event runs from Jan. 22-25. Photographer: Chris Ratcliffe/Bloomberg via Getty Images
Photograph by Chris Ratcliffe — Bloomberg/Getty Images

It was a softball question—the easiest one she was asked. “In three to five years, where do you see Yahoo’s revenue coming from?” CEO Marissa Mayer had already fielded 30 minutes of repetitive, nit-picky questions from analysts, none of whom even bothered with the kiss-up statements of congratulations that usually accompany a quarterly earnings call.

But on this question, all she had to do was parrot her prepared statements, or one of the familiar strategic themes she’s been touting since taking the helm two and a half years ago. She should have knocked that one out of the park.

Instead, she delivered a strange answer. Yahoo’s strategy, she said, is to be “the indispensable guide to digital information, yours and the world’s.”

Huh? What happened to the “daily habits?” Or the acronym Mayer recently coined, MaVeNS, which, naturally, stands for mobile, video, native advertising and social? I can only find Yahoo’s new mission statement in three places on the entire Internet. A new mission statement seems important for a company amid a massive turnaround. And yet it had gone entirely unnoticed.

For good reason: Yahoo’s watchers aren’t exactly interested in things like mission statements. None of the analysts on the earnings call seemed particularly impressed by the rapid growth in Yahoo’s mobile business or the fact that Tumblr was on track to hit $100 million in revenue this year. Rather, analysts obsessed over Yahoo’s new search deal with Microsoft. Would it increase costs? Would it need to build an in-house search engine? Was Yahoo really trying to compete with Google on search?

Yahoo’s investors are in it for what I call its “trader-bait”—the short-term actions with balance-sheet benefits. Already in Mayer’s tenure, Yahoo has returned $9.4 billion to shareholders, reducing its share count by 22%. It has sold $600 million worth of patents and licenses. Mayer reduced headcount by 5,600 people and closed 17 offices. These are the sorts of things investors like to hear about—though Yahoo’s investors did not deem any of those shareholder-pleasing tricks to be worthy of boosting the company’s stock today. Yahoo’s earnings per share missed analyst expectations by 3 cents per share and its profits fell by 93% year-over-year. Yahoo stock (YHOO) traded down in after-hours trading.

On the subsequent call, Mayer mostly resisted giving in. But then, in the middle of the call, she dangled a new piece of trader-bait: Yahoo Japan. In prepared remarks, Mayer announced the company has retained advisors for a potential sale of Yahoo Japan. “The options require careful study,” she noted. Yahoo Japan was created as a joint venture with Softbank in 1996; it has a market cap of 2.98 trillion Japanese yen, or $24 billion. Yahoo, with a market cap of $41 billion, owns 35% of the Yahoo Japan.

Upon news of a potential sale, Yahoo stock rose to 1% above its price at closing, wiping out the prior after-hours drop. A sale of Yahoo’s stake in Yahoo Japan stake would mirror Yahoo’s sale of its holdings in Alibaba, the anticipation of which has propped up Yahoo’s stock since Mayer became CEO. (The sale was announced earlier this year and will be completed in the fall.)

During the call, Mayer noted that the amount of capital Yahoo has returned to shareholders goes “well beyond any commitments we have made” and is four times as much as the company has spent on acquisitions. In other words, Yahoo’s chief executive seemed to say to Wall Street: What more do you want?

After Yahoo Japan, there won’t be any more valuable investments to sell off. Mayer has given the traders what they sought. After that, investors in Yahoo must be in it for the mission and the mission alone. Which, as you’ll recall, is “the indispensable guide to digital information, yours and the world’s.”

Update: This article has been corrected to note that Yahoo has reduced headcount by 5,600 under Mayer, not 3,000.