Has Yahoo! Gone as Far as It Can Go Under Marissa Mayer?

NEW YORK (TheStreet) -- As she approaches her third anniversary as chief executive of Yahoo! (YHOO), Marissa Mayer is facing a situation similar to that encountered by many professional sports coaches: putting a consistently winning team on the field now that the honeymoon period is over.

From an investment perspective, investors would find it hard to argue with Mayer's performance. Since July 17, 2012, the day Mayer started as Yahoo!'s CEO, the share price has climbed 158%, to trade at about $40.50 a share on Tuesday. In September 2014, Mayer also earned the favor of Yahoo! shareholders in overseeing the sale of 140 million shares it owned in Chinese e-commerce giant Alibaba (BABA) during its IPO. The Alibaba IPO netted Yahoo! $9.4 billion and Yahoo! still owns roughly a 15% stake in Alibaba that's valued at about $33 billion.

"She's clearly made the right moves for the stock, with the Alibaba sell-off benefiting Yahoo! shareholders," said Piper Jaffray analyst Gene Munster.

Under Mayer's leadership, Yahoo! hasn't shied away from making a big splash. In 2013, Yahoo! bought Tumblr for $1.1 billion in cash and stock. And in November 2014, the company acquired programmatic video-advertising company BrightRoll for $640 million.

The company also brought in noted tech journalist David Pogue to lead its Yahoo! Tech site, and this week Yahoo! agreed to give global news anchor Katie Couric a pay increase from $6 million to $10 million, according to news reports. The company picked up a new season of the show Community for its Yahoo! Screen site after the cult comedy was cancelled by Comcast's (CMCSA) NBC. Yahoo! also touts that it has more than 1 billion monthly users of its sites, making it one of the most popular online destinations.

"We may not be the biggest technology company, but we're the biggest technology company that understands media," Mayer said at the Bloomberg Tech 2015 Conference on Tuesday. "We may not be the biggest media company, but we're the biggest media company that gets tech."

Tim Bajarin, president of technology research firm Creative Strategies, said Mayer deserves a great deal of credit for revitalizing Yahoo!

"She seems to be moving the company in the right direction," Bajarin said. "The old adage that content is king is still very important and they are still one of the most viewed sites on the Web."

But despite those successes, some have a lingering sense that Mayer just can't get Yahoo! to break through to be viewed again as a leader and not a follower among the top players in the Internet sector.

"She was given a difficult hand to play," Munster said. "She's done what she can do, but that still doesn't solve the critical problem of relevancy, and the fundamental question of who Yahoo! is going to be in the future."

Yahoo! did not immediately return a request for comment.

Opinions on Mayer have been divided practically since her first day as CEO.

A former Google (GOOG) (GOOGL) executive, Mayer joined Yahoo! following several years of disruption at the company that included a failed unsolicited takeover attempt by Microsoft (MSFT), stagnant performance under former CEO Carol Bartz and an embarrassing flap involving CEO Scott Thompson. In 2012 he left the company after four months as a result of misrepresentations about his educational background.

With Mayer's anniversary coming up, she deserves at least some credit for taking on the challenge of making Yahoo! into something more than an also ran in Silicon Valley, said Jeff Sica of Sica Wealth Management.

"There is no denying that Marissa Mayer has had some positive impact on Yahoo! during her tenure," Sica said. "She has kept the company in the public profile and has diversified" its offerings. He noted Yahoo!'s original TV show content, news programs and an initiative to stream various live concerts.

But, it's possible that whatever bloom was on Yahoo!'s rose, it might be showing signs of fading.

While the price of shares has risen under Mayer's watch, it has fallen 23% since reaching a 52-week-high of $52.62 on Nov. 18, 2014. Part of that decline has come since mid-May, after reports surfaced suggesting that the Internal Revenue Service might change how it taxes corporate spinoffs. That possibility was seen as potentially impacting Yahoo!'s plans for spinning off the rest of its Alibaba holdings.

At a Bloomberg conference on Tuesday, Mayer said Yahoo! was "proceeding with our plan" regarding Alibaba and that any changes the IRS may make wouldn't be specific to Yahoo!

In Yahoo!'s most recent quarter, which ended in March, earnings excluding one-time items fell to 15 cents a share from 38 cents a share a year ago. Revenue, excluding the costs of traffic acquisition, slipped to $1.04 billion from $1.09 billion in the first quarter of 2014.

Sales of display ads, excluding traffic-acquisition costs, fell 7% from a year ago, to $381 million during the first quarter. While the number of such ads sold rose 29% from a year ago, Yahoo! said the price per ad fell 17% over the same period. On Tuesday at the market's close, shares were priced at $40.63, a rise of .41% for the day.

"Unfortunately, none of their recent initiatives have made a big enough splash to push them forward in the industry," Sica said. "The problem for Yahoo! and Mayer is this may be too little too late. Yahoo!'s advertising revenue and appeal has been plummeting for years now."

Added Sica: "This is their lifeline for survival."

But the company can point to some growth successes.

Revenue from what Yahoo! calls its "mavens" sources (referring to mobile devices, video ads and packages, native ads and social media) rose in the first quarter to $363 million. Of that amount, $234 million came from mobile sources. During the same period a year ago, mavens sales totaled $230 million, with the mobile share accounting for $145 million of that amount.

The company's "business in mobile is reaching a meaningful scale, and that growth is beginning to reach a level on the cusp of making up for declines in the legacy display business," said Robert Coolbrith, an analyst with Sterne Agee. "The question is when is that point."

And because of the ongoing debate over Yahoo!'s business performance, discussion about whether Mayer will be around for a fourth year at the company is likely to continue.

"Her strategy is moving Yahoo! forward, but it needs to continue to innovate if it is to grow," Bajarin said.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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