NEW YORK (TheStreet) -- The Google Gal is struggling at Yahoo! (YHOO). Her enthusiasm is gone. Her optimistic tone has disappeared. She was forced to eat crow and admit the promise of growth in 2014 was a pipe dream. Marissa Mayer's turnaround plan for Yahoo has hit a brick wall.
This second quarter report of revenue and profit decline marks a step in the wrong direction after a decent first quarter. Yahoo's future as a mobile advertising firm is now up for debate. Premium advertisers tightened up budgets as the average price for Yahoo ads declined by a whopping 24% compared to a 5% decline three months earlier; revenue from display advertising dropped 6.9%. This is a tech company without a growth identity.
Investors have lost count of how many acquisitions Mayer has made over the last two years but it's somewhere around 40. None of them have made a difference to Wall Street. The big bet on Tumblr has failed to evolved into Yahoo's version of YouTube. With no growth anywhere on the horizon this has quickly become a desperate time for the company, you know what they say ... desperate times call for desperate measures. And that's exactly what we expect to happen in coming months.
It's curious that Alibaba would agree to let Yahoo hang on to additional shares after the IPO. Instead of selling 40% of its stake, Yahoo negotiated to only sell 27% of its stake. To our knowledge Alibaba didn't get anything in return, Jack Ma simply said yes to the proposal.
Why? It likely has to do with tax payments and an eventual acquisition of Yahoo by Alibaba. Why give the proceeds to Uncle Sam when it can be kept on the books to appreciate? This makes sense for Ma only if he views Yahoo's stake in Alibaba as his own.
What might the acquisition look like? Yahoo's current market cap is at $34.2 billion; after the IPO the company will have somewhere around $7 billion in cash on its books, its core business generates over $1 billion in annual profits, it's Yahoo Japan stake is valued near $11 billion, and it will still own 16.8% of Alibaba which translates to a $33.6 billion valuation if Alibaba's total valuation reaches $200 billion.
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