Yahoo is like a homeowner trying to sell a house with a leaky roof and a crumbling foundation.
All of the company’s glaring holes will come to light on Tuesday, when Yahoo reports its first-quarter finances. It won’t be pretty.
CEO Marissa Mayer has made little progress over the past four years in her attempt to turn around Yahoo’s fortunes. Despite spending billions of dollars buying numerous companies, hiring A-list media personalities, and shifting the focus to high-growth areas like mobile and video, Yahoo’s core Internet advertising business has continued to lose ground to Google and Facebook.
This past quarter, Wall Street analysts expect Yahoo to have posted a loss, and sales are forecast to have fallen by double digits.
It’s not exactly a great time for Yahoo to be putting its core Internet business up for sale.
Bids were due on Monday. Yahoo has stayed mum on its potential suitors, and investors will undoubtedly make a sale the focus of the conference call with Mayer Tuesday afternoon.
Verizon, owner of Yahoo rival AOL, is expected to be the top bidder and the most likely company to eventually buy Yahoo.
Yahoo’s management, however, believes that the company is woefully undervalued, and the best turnaround plan is a healthy dose of staying the course and patience.
Mayer has repeatedly said that Yahoo has just scratched the surface in its potential to grow. She believes Yahoo’s struggling legacy desktop advertising business will soon be overtaken by its growing mobile, video, native advertising and social media businesses. In the fourth quarter, those businesses brought in more than a third of Yahoo’s overall sales.
Yahoo is also in the process of offloading its massive stakes in Chinese e-commerce giant Alibaba and Yahoo Japan, which constitute virtually the entire value of Yahoo. Effectively, that means the stock market has valued Yahoo’s core Internet business as worthless.
Even Yahoo’s biggest detractors don’t believe Yahoo is worth $0.
Shedding Yahoo’s Asian holdings and giving the company’s turnaround plan time to succeed may give Yahoo the boost it needs to compete for the future. But we’ll likely never know.
Yahoo could be sold soon. If it’s not, Mayer and Yahoo’s entire board faces a revolt from activist shareholder Starboard Value, which has said it would push to remove Mayer and all the directors at Yahoo’s shareholder meeting this spring.
Meanwhile, it’s (bad) business as usual for Yahoo.
Profit
First quarter of 2015: $21 million
First quarter of 2016 forecast: -$28 million
Losing just $28 million would look pretty good in comparison to the $4.4 billion loss Yahoo posted in the fourth quarter of 2015. That loss was due to giant writedowns on some of its biggest brands, and this past quarter will likely be impacted by Yahoo’s massive restructuring and layoffs.
But the bar has been set pretty low.
Sales
First quarter of 2015: $1.2 billion
First quarter of 2016 forecast: $1.1 billion, down 12%
Yahoo has been spending a lot of money in an effort to accelerate the growth of its core businesses.
But that isn’t happening overnight, and there are signs that Mayer’s plan has some holes in it. Yahoo expects mobile, video, native ads and social to grow by just 12% this year, slower than last year’s growth.
This quarter
Second quarter of 2016 revenue forecast: $862 million
This quarter, Wall Street analysts expect sales to come in at $862 million, excluding partnership deals. Yahoo will provide its forecast range Tuesday afternoon.
