Commentary
Yahoo Do You Think You're Fooling?
- by Bob Garfield , Featured Columnist, April 11, 2016
Gerald Levin, as far as I’m concerned, you’ve gotten a bad shake.
You’ve been tarred for striking the worst deal in corporate history, back in 2000, when you sold Time Warner to AOL for $184 billion in hypervalued, soon-to-be near worthless stock. That’s just not fair. Not because Wall Street also loved the deal at the time -- after all, Wall Street is the Mr. Magoo of institutions, incapable of seeing more than 3 months ahead.
No, it’s not fair because the worst deal ever wasn’t what you got from Steve Case and AOL, but the one Yahoo didn’t get from anyone.
At the time, Yahoo’s irrationally inflated stock was worth even more than AOL’s irrationally inflated stock: $208 billion, to be precise, in March 2000. Because it was the future! So much stuff to look at, so handy, it had made $149 million the year before. Just imagine!
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I did imagine. I imagined that it could buy General Motors, and actually own stuff. And make stuff, besides zeros and ones at a stratospheric P/E ratio.
OK, maybe that wasn’t entirely good stock picking on my part. But assuming there were other Jerry Levins out there, it could certainly could have bought Wells Fargo and Procter & Gamble in straight stock swaps and kept about $5 billion in change.
Those companies are now worth $456 billion. Today, Yahoo is worth in the neighborhood of $34 billion, which turns out to be a relatively shitty neighborhood. About $30 billion of that represents Yahoo’s stake in Alibaba and some other Asian holdings. What’s left -- $4 billion in valuation -- is the entire rest of Yahoo’s Yahooness.
To put that in perspective, in 2015, the company lost $4.36 billion.
That is what happens when investors fall in love with hockey stick growth, forgetting the hockey sticks are easily broken. That is what happens when we see can’t tell the difference between a unicorn and a mere racehorse that breaks fast out of the gate but pulls up lame in the stretch.
Clip this paragraph and tape it to the back of your phone: The reason technology is phenomenal is because it displaces years, or centuries, of previous technology. The reason technology is transitory is because it will almost certainly be displaced, too.
Or, at least, compromised by new conditions and unforeseen events -- such as the exploding Internet, elusive business model, the ascension of apps, freefalling CPMs, ad fraud, mobile, Google and, I dunno, the untectonic effect of a series of change agents, among them Lloyd Braun, Katie Couric and Marissa Mayer.
Now, with Mayer hanging on like Kate Winslet to the floating stateroom door, various opportunists are circling the sinking ship trying to salvage some treasure. Verizon. Barry Diller. CBS. The Daily Mail!
But if there’s any symmetry to the universe, the top bidder will be that one with the market cap north of $11.4 billion, a horn of plenty on a vaunted unicorn that itself is looking ever more like a mere fading nag.
Twitter, of course. Jack Dorsey, would you finally get poor Jerry Levin off the hook?
Bob Garfield, former editor at large for MediaPost, is a long-time public radio personality who currently hosts Booksmart Studios' "Bully Pulpit" podcast. A 30-plus-year commentator on media and marketing, he is co-host of public radio's Peabody Award-winning “On the Media” program; senior fellow at Wharton Future of Advertising Program, SEI Center for Advanced Studies in Management; founder of the Media Future Summit and author of five books.
Lloyd Braun! Gold, Garfield, gold!
If I remember correctly, Yahoo might have bought Google around 14 years ago for the puny sum of $5 billion but offered only $3 billion and was turned down. That probably rates as the worst non-deal of all time.
Congratulations on some excellent bobsplaining. Yahoo did make Mark Cuban very rich, too. $5.7B for an idea that quickly popped in the bubble.
In answer to your first question of who did it fool: Pensioners, mutual fund owners for starters....
My money is on Verizon. Tim Armstrong has wanted to put AOL and Yahoo togeher for years. AOL's ad tech beats Yahoo' ad tec. Yahoo has traffic. AOL need it. Verizon has a voracious appetite for content. Lowell McAdam knows he needs to get all that free cash flow pointed as something that isn't a commodity. New names... VerYahoo. YaRizon? YahuffPo, Yaol - how about goYahoo...
Where is Wang in all of this?
Ed, that's supposing that the incredible brains at Yahoo could have foreseen the threat and the potential that Google Search represented to AOL/Yahoo's proprietary homepage model. Surely, if they had been successful at buying Google, they would have stripped any valuable code and continued to pursue the aggregated, Yahoo-branded model. Like dial-up, this was doomed to be overtaken by broadband and the open web.
Never forget, the Alibaba investement was made by Jerry Wang before he was forced out. When Merrisa Mayer finally gets axed... She will walk with $55 MILLION. And she'll get hired for millions somewhere else... And do it all over again.
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