Verizon to Buy Yahoo

Verizon said it’s going to buy Yahoo’s core business for $4.8 billion. Yahoo will still have its investment in Alibaba, plus its patents.

Founded in 1994, Yahoo was one of the last independently operated pioneers of the web. Many of those groundbreaking companies, like the maker of the web browser Netscape, never made it to the end of the first dot-com boom.

But Yahoo, despite constant management turmoil, kept growing. Started as a directory of websites, the company was soon doing much more, offering searches, email, shopping and news. Those services, which were free to consumers, were supported by advertising displayed on its various pages.

For a long time, the model worked. It seemed like every company in America — and across much of the world — wanted to reach people using the new medium, and ad revenue poured in to Yahoo.

In the end, the company was done in by Google and Facebook, two younger behemoths that figured out that survival was a continuous process of reinvention and staying ahead of the next big thing. Yahoo, which flirted with buying both companies in their infancy, watched its fortunes sink as users moved on to apps and social networks.

I’ve often been critical of Yahoo as a potential investment. I don’t know how I can say it more plainly — the company simply isn’t that profitable.

While Google was singularly focused on search, Yahoo recast itself as a content company under its second chief executive, Terry Semel, who succeeded Timothy Koogle in 2001.

By the mid-2000s, Yahoo was struggling. Web portals, as they were called, were fading in importance, and social networks like Facebook were emerging as powerful competitors for people’s attention. Google had become the world’s dominant internet company through its search engine and its lucrative search ads.

In 2007, Mr. Semel was pressured to resign and Mr. Yang took over as chief executive. The next year, Mr. Yang rebuffed a $44.6 billion acquisition offer from Microsoft, infuriating many Yahoo shareholders.

If you were to turn back the clock to 1998, Yahoo was in a perfect position to own the Web. They had all the talent and all the smarts. They blew it.

Here’s Yahoo divided by the S&P 500 Total Return Index. The stock has been in a long 16-year downtrend.

If Yahoo had merely kept pace with the S&P 500 Total Return Index, the stock would be at $244 today instead of $39.

Posted by Eddy Elfenbein on July 24th, 2016 at 7:03 pm

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