Just a month after Yahoo’s board of directors summarily kicked CEO Carol Bartz to the curb, rumors are swirling that the once-mighty Internet company is gearing up for a sale. Reports have Yahoo engaging Goldman Sachs and Allen & Company to do due diligence and gather financial information together in preparation, and Reuters has reported Microsoft is already circling—although Bloomberg refutes it.
Yahoo has been struggling since Microsoft’s protracted $45-billion hostile takeover sideswipe back in 2008, with the company today valued at something like $18 billion. There’s no denying that the company has lost a lot of its luster. Who would be interested in buying Yahoo today—and, more importantly, why might they think it was a good move?
Yahoo may not be the Internet titan that it once was, but it still has a number of popular services and significant momentum amongst Internet users. Back in the day — before there were search engines — Yahoo was the de facto guide to the Internet: If you weren’t listed in Yahoo (and accurately) you really didn’t exist. While that role has largely been taken over by Google’s automated crawlers and search engines, Yahoo was able to leverage that early lead in Internet guidance into major footprints in a number of business. Yahoo is still a major Internet portal, even in an age when the idea of businesses built around “portals” seems incredibly passé. Yahoo serves as many Internet users’ home page, thanks to its strong stable of content offerings spanning news, entertainment, sports, video, and games.
Yahoo was one of the first companies to bring together the idea of pages with content customized to users’ interests, and it supplemented that idea with its own search engine (now powered behind the scenes my Microsoft’s Bing). Yahoo also runs one of the earliest successful forays into Web-based email (Yahoo Mail is second only to GMail in the U.S. market), and a host of ancillary sites and services that Yahoo acquired over the years. A notable gem in that bunch is the photo sharing service Flickr, which, despite some stagnation and the departure of its founders (they’re over at Glitch), remains the Internet’s premiere photo sharing community. It’s even thrived in an era seemingly dominated by YouTube. Yahoo Messenger also remains a strong IM platform, and the company has tried to stake out claims in the mobile services market.
All this translates to page views, and those views are the core of Yahoo’s business. Yahoo saw almost 900 million page views when news of Osama bin Laden’s death broke; similarly, the British Royal Wedding generated some 400 million page views in one day (PDF). Advertisers love numbers like that.
Although not all of Yahoo’s acquisitions have worked out well, a few of its investments have become very valuable, most notably its 40 percent stake in China’s Alibaba and a 35 percent stake in Yahoo Japan. The Alibaba Group is China’s ecommerce leader (operating Alibaba.com and Taobao), and Yahoo Japan is a wholly separate operating from Yahoo proper, despite bearing the same name. (For instance, Yahoo Japan uses Google for its search function.) The value of Yahoo’s investments in these companies has led some industry watchers to characterize Yahoo not as an Internet company so much as a holding company in Asian tech stocks: Yahoo’s stock in Alibaba is worth an estimated $9.4 billion, or nearly half of Yahoo’s total company value. The stake in Yahoo Japan might be worth as much as an additional $8 billion. If Yahoo could sell both stakes for top dollar, it could potentially pull in more cash than Yahoo itself is worth — on paper, anyway.