Marissa Mayer is gearing up for yet another turnaround plan for Yahoo. Given the company's persistent growth slump, even a sweeping overhaul may do little to fend off activist investors threatening to wage a proxy war aimed at her removal.
Yahoo's chief executive officer, who has overseen falling sales in 7 of the past 10 quarters, promised to detail a plan to cut costs and boost growth. The effort, set to be announced with quarterly earnings Tuesday, will probably include job cuts, a person with knowledge of the matter has said.
Once a major gateway to the wealth of information, communities and entertainment on the internet, people have in recent years ditched Yahoo in favor of Google, Facebook and other companies at the center of people's digital lives. Since her hiring in 2012, Ms. Mayer has made scant headway in efforts to restore growth at the web pioneer. Now, she's mired in a complex project to decouple Yahoo's main business from its $25 billion stake in Alibaba Group. Activist investors dissatisfied with progress have all but threatened a proxy war.
"She's almost out of time," said Ryan Jacob, who manages Yahoo shares as part of his Jacob Internet Fund. "At this point, it's hard to imagine a proxy fight being averted. I would welcome it, given the changes at Yahoo have just been incremental. That's what's been frustrating shareholders for years."
While boasting more than 1 billion users, Yahoo has struggled to keep pace with growth in online advertising, with Yahoo's share of the U.S. market projected to shrink to 3.5% in 2017 from 5.1% in 2014, according to EMarketer. Analysts project 2015 revenue, minus sales passed on to partners, will fall 8.2% to $4.04 billion, its biggest decline since 2009.
Starboard Value, which last disclosed a holding of less than 1% of Yahoo, has voiced the biggest complaints. On January 6, the investor urged an overhaul of management and the board, stressing that "significant changes" were needed, including a possible sale of Yahoo's main Internet business.
"It appears that investors have lost all confidence in management and the board," Starboard said after Yahoo abandoned a year-long plan to separate the Alibaba stake in a tax-free transaction. Ms. Mayer detailed a new initiative to spin off Yahoo's main business, a process that could take another year.
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Other disgruntled shareholders have voiced their frustration, including Canyon Capital Advisors, which said Yahoo needs to prioritize the sale of some assets, the web operations or the entire business. SpringOwl Asset Management also criticized Yahoo's management and strategy and called for deep cuts.
Apart from Alibaba, Yahoo also owns a $7.61 billion stake in Yahoo Japan, which will also report earnings this week. After accounting for those two holdings, Yahoo's market capitalization of $27.9 billion effectively values its main business at less than zero.
Although Ms. Mayer and the board downplayed any drastic scenarios last year, they may be warming up those possibilities. Yahoo is considering an outright sale of its business, people familiar with the matter said last month. The company may need another new plan in the face of an expected proxy fight by an activist investor, said the people, who asked not to identified because a final decision hasn't been made.
"At this point everyone's tired and just wants the board and management to agree and entertain some offers for the core business to be sold," said Sameet Sinha, an analyst at B. Riley & Co. "Yahoo doesn't have any sort of killer products that can change the trajectory of the business."
Sarah Meron, a spokeswoman for Sunnyvale, California-based Yahoo, declined to comment.
Ms. Mayer has remained resolute in the face of activists, insisting the company can be turned around -- and that these kinds of changes won't happen overnight.
"We see a unique moment and opportunity for Yahoo as we move into 2016 to narrow our strategy and focus on fewer products with higher quality to achieve better growth and better results," she told analysts in October.
Ms. Mayer has already been trimming costs, reducing the workforce by more than 30% since she joined and closing some sites. There's a chance she could surprise investors with something radical, such as slashing half the staff, but that's not likely to happen -- and even then a proxy fight could still happen, said Brian Wieser, an analyst at Pivotal Research Group.
"Right now the big risk -- from an investor perspective -- is that capital will be burned," Wieser said. "Even if it was a great-sounding proposal, it doesn't mean they can prevent a proxy fight, let alone win one."
-- Bloomberg News