Yesterday, we looked at how the market values Yahoo, and tried to understand why a company with $6.3BN in net assets, and another $31BN in a fairly liquid equity investment is valued only at… $31BN!
Interestingly, Daniel Morris pointed out an article in CNBC from September which argued that the issue is taxes. Essentially, Yahoo’s investment is encumbered by a potential tax bill. If an when they liquidate it, the tax bill will be enough to wipe out the rest of Yahoo’s assets.
Personally, I find that somewhat farfetched. The tax issues are real, but there are lots of ways to do tax-free equity transactions. Nonetheless, I appreciate the angle I had not considered.
Today, I want to take a look at what Yahoo’s core businesses actually are.
The second Business Insider article referenced yesterday lists the following “core” Yahoo businesses:
- Search (of course)
- Sales force
- “A bunch of people and intellectual property”, mostly “gained through a series of small acquisitions… mostly small mobile app makers and ad tech companies.”
I have two key issues with this list, which I think impact the entire valuation.
A Sales Force is Not a Business
In my early years as an engineer and then manager, I did not respect sales people. They constantly badgered me to buy products I simply did not need, made promises that could not be kept by the stuff I did buy, and all seemed like Alec Baldwin in Glengarry Glen Ross.
Over time, I learned two lessons:
- It really is difficult to sell into corporations, especially large ones. It takes a special skill to do so, even when the product or service are a win for the buyer.
- There are some great sales people out there who are smart, capable, and actually care for the relationship with the buyer, not just the next deal.
Nonetheless, “Sales Force” is not a core business. A great sales force is an asset, often underrated. Sometimes, it is overrated – usually a sign of poor product and bad management. But a “Sales Force” is not a business any more than a factory is a business; it is an asset, depending on what you do with it.
Unless you are in the business of renting out salespeople, like consultants, then “Sales Force” is not a core business.
Yahoo Once Was – and Still Is – a Technology Company
Yahoo started as a technology company, pioneering services on the Internet. At its core, it did great engineering. It understood that it needed to build and innovate so that its businesses could succeed.
It might not be selling technology, but it sure is selling services that depend upon technology.
Look at Yahoo’s founders:
- David Filo built the first Yahoo Web server, and holds a B.S. and M.S. in computer engineering.
- Jerry Yang, who still sits on Yahoo’s board, has a Master of Science degree from Stanford.
These founders were engineers who built real stuff.
That culture persists inside Yahoo.
Yahoo continues to do significant research and build interesting products, although reports on the ground are that it is somewhat reduced in the last few years. They reportedly have one of the best mobility and access labs in the world, for matching technology to disabled individuals.
Yahoo’s github page has 325 open-source repositories.
Quite simply, Yahoo could be a technology powerhouse. The problem, of course, is that all of that technology is used either for Yahoo’s own (apparently worthless) businesses or opened up at large.
How many independent and successful technology businesses could exist if Yahoo enabled every one of those units to market and sell technology products or services to the market at large?
“Sales Force is an asset, not a business, let alone a core business.
But Yahoo’s vast technology expertise, culture and product set could be many independent standalone businesses, if given the room to innovate, expand and grow independently.