Yahoo! Inc. YHOO
Yahoo's Core Business is collapsing because of $550M of self-inflicted cost bloat; cutting costs and replacing the Microsoft search deal can restore profitability without touching Alibaba.
Thesis
Yahoo's headline stock performance masks a rapidly deteriorating Core Business: Adjusted Core EBITDA has fallen 57% from $1.34bn in 2012 to $582M LTM, margins have compressed from 32% to 11%, and Q1/Q2 2015 went free-cash-flow negative. Starboard argues the main culprit is not the PC-to-mobile shift but $550M of incremental SG&A and R&D since Q1 2012, compounded by ~$5.7bn of value-destructive acquisitions that have failed to produce revenue growth. The fix is within management's control: a $330-$570M cost-reduction program that simply reverses the bloat, a rationalization of unprofitable Display properties toward the handful that actually make money (Home Page, Search, News, Mail), and renegotiating the Microsoft search deal for an incremental $15-$20 per 1,000 searches. Absent urgent action, Starboard expects broader restructuring commitments.
SCQA
Yahoo's stock has been carried by its Alibaba stake, masking the real operating business — the Core Search and Display franchise that Marissa Mayer was hired in 2012 to turn around.
Core EBITDA has fallen 57% since 2012 and free cash flow just went negative; ~70% of the decline stems from $550M of self-inflicted SG&A/R&D bloat and failed acquisitions, not the mobile shift.
Cut $330-$570M of costs to unwind the three-year bloat, shut unprofitable Display properties, halt acquisitions, and switch the Microsoft search deal to a higher-RPM provider.
Restoring the ~$550M of lost EBITDA plus incremental $15-$20 per 1,000 searches from a new search partner would reverse the Core Business's collapse and return it to profitability.
The three reasons
- 1
Core Business EBITDA has collapsed 57% since 2012 and Q1/Q2 2015 turned free cash flow negative
- 2
~$550M SG&A/R&D bloat explains >70% of the profit decline — not the PC-to-mobile shift
- 3
$5.7bn spent on acquisitions and product dev has produced shrinking revenue and EBITDA
Primary demands
- Cut $330-$570 million in Core Business costs to reverse the ~$550M SG&A/R&D bloat since Q1 2012
- Rationalize unprofitable Display properties, halt value-destructive acquisitions, and refocus on profitable properties (Home Page, Search, News, Mail)
- Renegotiate or replace the Microsoft search agreement to capture an incremental $15/1,000 mobile searches and $20/1,000 PC searches
- Board to set aggressive budgets and hold management accountable for near-term profitability improvement
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Notable slides (4)
Notes
Letter is dated August 10, 2015 on the cover despite the filename suggesting 11.19.15 — cataloged with the letter's own date. Signed by Jeffrey C. Smith, Managing Member of Starboard Value LP; addressed to Chairman Maynard J. Webb (cc Mayer and Goldman). Classic Starboard operational-turnaround letter: no stake disclosed, no explicit target price, no peer comparison; argument is entirely a YoY self-comparison against the 2012 base. Strong use of management's own 'EBITDA levels are at a low point' quote to frame the contradiction chart on p.4. MaVeNS acronym (Mobile, Video, Native, Social) referenced as the growth narrative Starboard rejects.