Yahoo Stockholders Growing Impatient

Yahoo’s stockholders know that the company’s recovery will be long and slow, but at the annual shareholder meeting this week, they began to show signs that they were growing impatient with the process. With much of its search technology a Microsoft concern and much of its value in its Asian assets, what kind of future does the venerable but battle-scarred technology firm face?

One indication of stockholder impatience was their approval of Yahoo CEO Carol Bartz and Chairman Roy Bostock’s re-election to the board. Stockholders approved their re-election with about 80 percent of the votes. That sounds like a huge margin, until you consider that all of the other directors got at least 90 percent.

While Bostock said at the meeting that “We are confident that Yahoo is headed in the right direction,” some stockholders aren’t quite so sure. True, Bartz has cut costs, doing such painful things as cutting jobs and even forming a partnership with longtime rival Microsoft. Despite these efforts, the company’s share of the US search market has hovered around 16 percent for the last six months, according to ComScore.

Yahoo’s most valuable assets are seemingly not here in the US, but in Asia. It owns a 43 percent stake in China’s Alibaba Group; there is also Yahoo Japan to consider. Indeed, Greenlight Capital believes that Yahoo’s most valuable asset is its stake in Alibaba.

Alibaba owns e-commerce businesses in China, perhaps the largest and fastest-growing Internet market. Yahoo’s shares get a strong boost from this holding. Consider this: last month, Yahoo reported that it had to comply with foreign-ownership restrictions in China by transferring one unit of Alibaba Group to a Chinese-owned company. Specifically, it transferred Alipay, Alibaba’s online payment unit, to a company that is mostly owned by Jack Ma, Alibaba’s CEO. Yahoo’s shares have fallen 18 percent in the month since, thanks to concerns that Yahoo’s stake in Alibaba would lose value.

So if Yahoo’s Alibaba stake loses value, where can Yahoo turn? Well, there is Yahoo Japan, and the company is exploring ways to get more value from it. According to Yahoo CFO Tim Morse, possibilities being considered include spinning Yahoo Japan off or creating a tracking stock.

Yahoo’s biggest problem, perhaps, is the increased competition for its main business of selling ads that run next to its services. Facebook just bumped Yahoo to the fourth most visited site on the web; the venerable search company held the number three spot last year. Google and Microsoft make up the top two. Worse, according to Emarketer, Facebook is positioned to steal Yahoo’s standing as holder of the biggest share of the US online display advertising market. The Internet market research firm thinks it can happen as early as this year.

Part of the problem is that this trend has been going on for far more than just one year. Yahoo saw its sales fall 13 percent from 2008 to 2010, while Google’s sales rose 35 percent over the same period. And sadly, Yahoo’s agreement with Microsoft hasn’t generated the kind of ad revenue that either company expected, though both firms are working on fixing that problem.

So where does all this leave Yahoo? At least some of the people in charge still seem to think it’s a good idea to position it as an entertainment firm. Yahoo reportedly made an unsolicited bid for online TV site Hulu, only a day before Hulu announced that it was putting itself up for sale. It’s not clear how much of a bid Yahoo might make; it’s not even clear that anyone else is interested, or that it would be a good purchase. Hulu’s media owners – News Corp., Walt Disney, and NBCUniversal parent Comcast – and Hulu’s management disagree over the way the company is run. Specifically, according to the Los Angeles Times, “cable satellite and television companies that pay fees to carry network programs have been upset that many of the same shows are available for free on Hulu.”

It’s that free content that has made Hulu so popular. If Yahoo owned Hulu, would those three media companies still be willing to continue providing their content? And even if they did, would it be enough to help Yahoo regain market share? Given the number of different directions Yahoo is being pulled in, the future remains uncertain. Is it any wonder that Yahoo’s stockholders are growing impatient?

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