SAN FRANCISCO -- Not much had been going right for Yahoo until it lured Marissa Mayer away from Google to become its CEO last summer. The move is shaping up as the best thing to happen to Yahoo since 2005 when it invested $1 billion in what was then a little-known Internet company in China, Alibaba.
Mayer’s magnetism and Alibaba’s prosperity are now combining to transform Yahoo Inc. from a tale of woe into a comeback story that is winning over Silicon Valley and Wall Street.
Second quarter earnings, released after the markets closed Tuesday, rose 46 percent over the same quarter in 2012. But revenue dropped 7 percent from the same time last year to $1.14 billion, pushing down the share price nearly 2 percent late in the day. Much of that was regained in after-hours trading.
Despite the erosion, Mayer said she remains encouraged by Yahoo's progress. “Our business saw continued stability, and we launched more products than ever before, introducing a significant new product almost every week,” Mayer said in a prepared statement about the Yahoo's second-quarter performance.
Since Mayer, 38, moved from Google to Yahoo a year ago, the share price has surged nearly 70 percent. People are spending more time on Yahoo’s flagship website. Talented engineers and entrepreneurs are coming to work for the company. Investors are adding its long-languishing stock to their portfolios again. The signs of renewed interest and hope mark a dramatic change from the feelings of hopelessness that had enveloped Yahoo under the direction of six CEOs in the six years leading up to Mayer’s appointment.
Since her arrival, Mayer has orchestrated 17 acquisitions, including a $1.1 billion purchase of Internet blogging service Tumblr, Yahoo’s biggest in a decade. Yahoo’s home page, email and Flickr photo service have all been redesigned, and a few mobile applications have been upgraded, helping to increase use of the company’s Internet services. And Yahoo’s revenue is increasing, if ever so slightly, after three straight years of decline.
Despite all that, Mayer can’t take much credit for Yahoo’s resurgent stock. Most of the increase in the shares has been driven by the rising value of the company’s stake in Alibaba Group, which owns a network of bustling e-commerce and digital payment services in China.
“The performance of Yahoo’s stock under Marissa has virtually nothing to do with what everyone associates with Yahoo – the U.S. operations,” Macquarie Capital analyst Ben Schachter said. “We really haven’t seen a significant change in the operations yet.”
Mayer wasn’t involved in the initial investment in Alibaba. Shortly after Mayer came on board, however, Yahoo realized a $7.6 billion windfall by selling roughly half of its Alibaba stake back to the Chinese company.
Investors have been pleased with what Mayer has done with the money. She has used most of the after-tax proceeds to buy back Yahoo’s stock, a tactic that has funneled money back to them and boosted the company’s earnings per share by reducing the amount of outstanding stock. Yahoo ended April with 1.08 billion outstanding shares, a decrease of 102 million, or 9 percent, from last July.
Yahoo still owns a 24 percent stake in Alibaba. Schachter estimates that could bring in another $20 billion when Yahoo sells the rest of its holdings. Some of the money is expected to come in when Alibaba makes an eagerly anticipated initial public offering of stock, expected by early next year. The rest would come some time after the Chinese company goes public.