NEW YORK (TheStreet) -- Any new CEO builds credibility with investors by the moves they make early in his/her tenure. If the company's operating results or acquisitions are wise in the early-going, investors tend to be happy and hands-off when it comes to the CEO making their subsequent moves.
When the early moves are seen quickly as mistakes, investors tend to be unhappy and a lot less forgiving with future moves that CEO wants to make.
Yahoo! (YHOO) CEO Marissa Mayer has had a disappointing first two years on the job at Yahoo!. The company's operating results have been steadily deteriorating under her watch. Capital IQ estimates for Yahoo!'s revenue and EBITDA have been consistently cut by analysts this year.
Her big strategic acquisition to date has been Tumblr, for which she paid $1.1 billion. According to the reporting of Nicholas Carlson at Business Insider, Yahoo! entered into a 30-day period of exclusive talks with Tumblr before it bought them. Yahoo! made an initial offer to Tumblr's financial advisers, Qatalyst (headed by Frank Quattrone), to buy the company for $800 million. Even though Yahoo! and Tumblr were in exclusive talks, Carlson reported that Mayer heard that Facebook's (FB) Sheryl Sandberg was also interested in Tumblr and decided to outbid her original offer by raising it to $1.1 billion cash.
When asked about Tumblr at the Merrill Lynch conference in June, Yahoo! CFO, Ken Goldman, said "Tumblr was a company that wasn't for sale first at all." That's a confusing statement, since Tumblr had hired Qatalyst to shop itself for a buyer. Several people I have also spoken with subsequent to the deal have told me that, at the time Tumblr put itself on the block, it had less than $5 million in the bank -- and no obvious suitors. Yet, Yahoo! ponied up more than a billion in cash.
One analyst at the Merrill conference put it this way to Goldman:
"Fairly or unfairly, people are going to use Tumblr as a gauge of how your acquisition strategy is working out. Do you have any updates on how Tumblr's doing and how enthusiastic you are on it helping to grow revenues over the next couple of years?"
Goldman's response was "I actually feel great about it," but he refused to provide any numbers of what Tumblr was doing or planned to do for Yahoo!.
Yahoo!'s investors don't feel great about it. At the current stock price, the core Yahoo! business is basically valued at zero. This means investors believe all $2 billion spent by Mayer and Goldman on M&A has been wasted and is unlikely to be recouped.
On the most recent Yahoo! earnings call in July, Mayer presented another disastrous set of results for the core business. She tried to deflect investor anger by pointing out that, prior to her arrival two years ago, Yahoo! lacked "a clear vision for the future and some of the key fundamentals to build a vibrant growth business. Today, [Yahoo!'s] ability to focus and execute has led to some dramatic and critical changes." She then went on to discuss the growth of the mobile user base.
It's interesting that she implied that Ross Levinsohn had no vision for Yahoo! -- which isn't true, of course; he had a media vision for Yahoo!, which the board at the time opted against -- and that they do now. However, she never says Yahoo! has a vision now.
That's a big problem I have with Marissa Mayer as a leader of Yahoo!: What exactly is her vision for the company and what will lit ook like in 5 years? I know it involves mobile and daily habits but that's it.
How exactly does Tumblr fit into that vision? Is it to be a new CMS system to replace Yahoo!'s dozens of existing CMS systems? Did you really need to pay a billion dollars for that?