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Hedge Fund Manager Criticizes Yahoo for Wasting $3 Billion On Poor Acquisitions (businessinsider.com)

Posted by samzenpus on from the bad-choices dept.

mrspoonsi writes: On Monday morning, Eric Jackson, manager of hedge fund SpringOwl, sent a brutal 99-page presentation to Yahoo's board, outlining his case for why the company should drop Marissa Mayer as CEO and find new management. Jackson points out that Yahoo has burned through $3 billion on M&A in the past three years since Mayer took the reins, which contributes to $10 billion in what Jackson calls Yahoo's misallocated capital. The value of all of those startups Yahoo has acquired, Jackson says, is worth nothing at Yahoo's current stock price. Jackson also points out that Yahoo has a history of buying up startups run by former Google APM members. While at Google, Mayer started the company's elite associate product-manager program. Of the 49 acquisitions Yahoo has made under Mayer's leadership, six were startups founded by ex-Googlers. The total cost of these six acquisitions is $319 million, according to Jackson's slide deck. Yahoo bought Polyvore in July for $230 million. Polyvore, a social commerce site that lets users make artistic collages of clothes and accessories...But Jackson does not mince words when it comes to Yahoo's decision to spend shareholder money acquiring Polyvore and companies like it. "It's not acceptable to pay $230M for zombie companies run by former APM members," he says, pointing out that Polyvore had raised $22 million in VC funding, was 8 years old, and had gone through multiple pivots. For all intents and purposes, it looked like a goner until Yahoo bought it.

11 of 159 comments (clear)

  1. Marissa must be a prepper by Spy+Handler · · Score: 4, Funny

    she bought those zombie companies for the coming apocalypse!

    Either that or she was just doing a solid by her old Google buddies

    1. Re:Marissa must be a prepper by Daemonik · · Score: 4, Insightful

      Either that or she was just doing a solid by her old Google buddies

      That's what CEO's do. When Yahoo eventually drops her, her buddies will ensure she gets another position at the top of another company without any shareholder input into it, or a nice fat golden parachute on her way out. It's how Léo Apotheker got hold of HP, and how he walked away with $25 Million when they had to boot him.

      It's time we destroy the cult of the CEO, they're nothing but corporate leaches feeding the masses (shareholders) free bread (short term gains) while the company crumbles around them.

  2. Merger and Acquisitions by CastrTroy · · Score: 5, Informative

    In case anybody is wondering M&A stands for Mergers and Acquisitions.

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    Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
    1. Re:Merger and Acquisitions by Darinbob · · Score: 5, Interesting

      I was at a company once where every time it was announced we were considering a merger, the stock price went up. When the merger when through, the stock price went up again. The VP of Acquisitions eventually became the CEO. The stock got up to unreasonable levels, at which point they announced considering an acquisition and an analyst said "hmm, I wonder if that's a good idea" and the stock plummed by half over the next two days. It was an industry leader though, it went through the dotcom boom and bust six months before of other companies.

      But anyway, Mergers and Acquisitions has often been seen as a way to make money. And Yahoo did make money this way. They did almost too well with Alibaba which is worth more than Yahoo now (which raises tricky legal concerns about who owns who). The problem is falling into the trap of thinking mergers by itself is a good idea. Just because Google can buy useless companies by paying 100 times their estimated value does not mean everyone should follow suit.

  3. Re:What the $&@! are M&A? by Anonymous Coward · · Score: 5, Informative

    Mergers and Acquisitions.

  4. I don't know when they bought Flickr... by istartedi · · Score: 4, Interesting

    I don't know when they bought Flickr, but it was under her tenure that they imposed infinite scrolling on us, and made Pro a nearly valueless product for many people. I hope they can spin out Flickr somehow, and make it for all the users again, not just a lame attempt to play to tablet people. Nothing against tablet people, but the world is more than quick-flipping through pictures and memes with text on the picture. For some of us, the prose under our pictures is just as important as the picture itself and when you make viewers hunt for the prose they won't do it. They'll just go "this picture isn't very sensational" and move on. So sad. End rant.

    p.s., A wikipedia style non-profit for Flickr might not be a bad idea.

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    For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
  5. Re:Did Yahoo EVER make money? by ShanghaiBill · · Score: 5, Interesting

    I remember back around Y2K they were burning through capital and had zero profits to show.

    Yahoo was an early investor in Alibaba. They have made billions and billions off of that investment. Other than that, they have not done much.

  6. Not just Yahoo by MountainLogic · · Score: 4, Interesting

    Google paid $3.2B for a thermostat company founded by a former PM from the iPod team. At least they are selling a few units and in a decade or two they will grow enough to be a footnote for Google's annual report.

  7. New YHOO investors deserve to lose money by vinn · · Score: 4, Interesting

    Anyone who's invested in YHOO in the past decade deserves to lose money for believing the company has any relevance left. I understand being hopeful about a CEO, but when it involves changing the underlying business model you should run away from the stock as fast as you can. There is no gamechanger here for this stock. The fact that it's still valued at $32 per share is reason enough to sell this stock and get the hell away from it.

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    ----- obSig
  8. Re:Just TODAY by tnk1 · · Score: 4, Interesting

    I'm not sure who in their right mind would have held Yahoo, even before Mayer crashed and burned. Yahoo is a search engine that isn't Google with no entrepreneurial energy left to even sort of try to make a fight of it. They're basically a holding company for Alibaba stock. They need to resurrect Zombie Steve Jobs from the grave to save them. Marissa Mayer never had a chance. I'd almost feel sorry for her, except that she's making bank off this job. I just hope she didn't want to work as a CEO ever again of a company not bankrolled by herself.

  9. a dirty little secret by david_bonn · · Score: 4, Insightful

    ... in Silicon Valley is that there is an axis amongst venture capitalists and M&A people. A surprising number of senior M&A people are also investors or even partners of VC firms. So when a company turns out to be a dog the VC people have a way to get their money back, the founders get themselves a new job at the acquiring company, and everyone else gets screwed.

    To me it is shocking that a hedge fund guy is just figuring it out. It probably has been going on in one form or another for over forty years. And no, as far as I know it isn't even illegal.