Yahoo Chairman: 'No Determination' Whether to Sell Portal's Core Business

Yahoo Execs Spin Move as Way to Clarify Value of Yahoo's Core Business

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Yahoo CEO Marissa Mayer and CFO Ken Goldman
Yahoo CEO Marissa Mayer and CFO Ken Goldman Credit: Marissa Mayer's Tumblr page

More than 1 billion people visit a Yahoo-owned property each month, according to the company. Yahoo has the third-largest online footprint of any media company in the U.S., according to comScore. Yahoo ranks fourth in the list of companies that will take the most share of U.S. digital ad revenue this year, according to eMarketer.

And now Yahoo is getting rid of that business because its investors think its stake in Chinese e-commerce giant is more valuable than its core search-and-display-advertising business.

On Wednesday, Yahoo announced it plans to spin off its core business in order to keep the Internal Revenue Service from taxing its stake in Chinese e-commerce giant Alibaba.

Yahoo had originally planned to spin off the Alibaba stake into a new company, Aabaco Holdings, in order to keep its shareholders happy. But when the IRS wouldn't give the company a thumbs up or down on whether it would tax the spin-off, activist investor Starboard Value implored Yahoo to reverse course and spin off or sell its core business instead.

It's unclear whether Yahoo plans to spin off its core business into a new company that would effectively be Yahoo -- same executives, same products, same offices -- but under another name. Or whether it would sell that core business to another company. And it's unclear how soon any of this will happen. Yahoo execs said that financial dealings like this reverse spin-off can take a year or longer to complete.

"There is no determination by the board to sell the company or any part of it," said Yahoo Chairman Maynard Webb during a call with investors on Wednesday morning.

If a sale is an option, Verizon appears to be among the potential suitors waiting in line. The telco giant earlier this year bought Yahoo rival AOL for $4.4 billion, and on Monday Verizon CFO Fran Shammo said the company would look into whether it would make sense to pick up Yahoo as well.

Getting a better read on the value of Yahoo's core business is part of the reason for the reverse spin-off, the company's executives said during Wednesday's call.

"We believe that we are tremendously undervalued and believe the best path to unlocking that value is to separate the Alibaba assets from our operating businesses and turning around the performance in our operating business," Mr. Webb said.

"The separation allows us to align our share performance with company performance," Yahoo CEO Marissa Mayer said during Wednesday's investor call. That implies that investors had been buying Yahoo stock as a proxy for buying Alibaba stock, which appears to have been the case.

Yahoo was valued at $33.5 billion, as of 9:37 a.m. ET on Wednesday. That's not much more than the $31 billion that its stake in Alibaba is reportedly worth, meaning that investors appear to think Yahoo's core business is worth less than the revenue it generates.

While Yahoo's core business still makes a lot of money -- $4.6 billion in total revenue last year -- it's not as profitable as it once was, aside from the $6.3 billion bump it received in the third quarter of 2014 from Alibaba's IPO that was set aside for the now-negated spin-off of that stake.

Yahoo isn't banking as much money as before because it's paying more to outside companies in order to generate that revenue. Yahoo pays companies like Firefox browser maker Mozilla to drive traffic to its sites so that Yahoo can make money from showing ads to those people, and it also pays other publishers to carry its ads on their sites and shares some of that revenue with them. After subtracting what Yahoo pays for that traffic, the company's overall revenue, as well as its revenue from search ads and display ads have declined since Ms. Mayer took over as CEO in July 2012.

CNBC reported on Tuesday that Yahoo would go ahead with the reverse spin-off, following a report from The Wall Street Journal last week that Yahoo's board was considering the option at its previously scheduled board meeting.

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