The Yahoo stock price was down 0.88% in afternoon trading today (Monday) after hedge fund investor Eric Jackson submitted a 99-page proposal on how Yahoo could improve its failing Internet business.
Unlike other activists, Jackson's SpringOwl management firm doesn't believe selling off Yahoo Inc.'s (Nasdaq: YHOO) Internet business will provide shareholders with increased value. He thinks selling now would be selling at a low point, and that Yahoo's Internet business is undervalued because it has been mismanaged by CEO Marissa Mayer.
In his proposal, Jackson offered actionable steps to turn around the Yahoo stock price, including:
- Reducing Yahoo's workforce from 11,900 to 2,900 employees
- Removing a free food program for employees, a program that has cost Yahoo $450 million over four years
- Selling its headquarters
But Jackson's central argument is for the removal of Mayer.
The proposal cites examples where business acquisitions and purchases haven't worked out. It also highlights excessive expenses that had no way of improving Yahoo's bottom line or the Yahoo stock price. For example, Mayer hosted a Wizard of Oz party in 2014, and the photo shoot alone cost $70,000.
But that wasn't even that extravagant compared to Mayer's party this year. Jackson alleges that Mayer spent $7 million for a Great Gatsby-themed party in San Francisco this December.
Jackson makes a strong case for why Mayer should be removed as CEO, but SpringOwl may not have enough of a stake in YHOO stock for the proposal to be executed. SpringOwl has not revealed its stake in Yahoo, but it's only a minority stake.
Jackson's plan also differs from that of Starboard Value LP and Canyon Capital Advisors LLC, two of the largest shareholders of Yahoo stock. These shareholders want Yahoo to sell its Internet business.
But there's a major reason why the YHOO stock price won't rebound in 2016, even if Yahoo follows the plan of its biggest shareholders...
The Yahoo Stock Price Will Remain Stagnant in 2016
The Yahoo stock price will continue to drop in 2016 because Mayer has failed to innovate and make the company relevant.
A potential buyer would have to have a very specific reason for purchasing Yahoo's Internet business.
As Jackson stated in his proposal, some of Mayer's innovations - like "LiveText" - have just been money pits. LiveText allows you to text someone and see their faces but not hear them, and was supposed to be a strong rival to Instagram and Snapchat. It was released on July 30, but does not have enough downloads to rank on any app store list, according to Jackson.
And not only has Mayer failed to create a rival to Snapchat, she even lost the opportunity to have Yahoo featured on Snapchat's Discovery feature...
Discovery provides editorial videos from publishers, and Mayer believed that Yahoo News anchor Katie Couric was a strong enough draw to engage younger users. But after Snapchat informed Yahoo that Couric wasn't a big draw, Snapchat replaced Yahoo with BuzzFeed.
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Mayer has also tried to create a presence for Yahoo as an original video content provider. She's spent over $100 million on that goal in the last two years alone.
But once again, Mayer's efforts have failed. Yahoo had to write off its online shows as a $42 million expense in 2014.
Jack Delaney is an associate editor for Money Morning. You can follow him on Twitter and follow Money Morning on Facebook.
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