BUSINESS BLOGS
BUSINESS BLOGS
category: business
21 Jun 2007
related tags: Internet & Web | M&A | Management | Yahoo! |

Here’s what I love about the Yahoo! move today: swift action, finally.  Well, sort of.  Yes, the Rivals.com deal was in the queue for months. 

Three Questions.

1 - Some will ask if this was Yahoo!’s attempt to make it seem like they are doing things and taking action. 

2 - Others are wondering if this will help them. 

3 - Some are wondering if the price was high.

Now, the answers.  Here’s what I think:

1 - Yahoo! has been criticized for becoming fat, slow and multi-layered.  Indeed this deal was probably sitting on many people’s desk, creating a backlog.  I think that why Yang makes sense as CEO is he has nothing to prove to insiders, so he need not waste energy and resources on winning them over.  He can instead look at the ever-growing company to-do list and say: “let’s scratch off some items by either pulling the trigger and doing them or realizing that we won’t and moving on.”

$100M is both a small and a large deal.  Don’t kid yourself, for a company with $3.52B of cash as of Dec. 2006 on the books, it is material.

The problem with sitting on deals is that you create a backlog.  Your bizdev guys are busy rereading documents and running numbers.  Your lawyers are sending drafts back and forth.  When all of this happens, they don’t get to business development, sales and marketing.

2 - Yes.  Advertisers love sports, it is a very strong psychodemographic.  Yahoo!’s sports get 15M users but Rivals.com’s 2M users are the hardcore variety.  Advertisers prefer flocking to these sites when they want sports fans, hence why ESPN and SI are doing so well.  Yahoo! had invested a lot in music but not as much in sports.  This is a strong vertical.

Speaking of verticals and the entire context is king mantra, Yahoo! is hopefully going to understand that having a strong Yahoo.com portal and My.Yahoo.com will only get them so far.  The rightmedia acquisition will help them monetize and optimize the oh-so-not-premium inventory, but strenghtening verticals will hit the sweet spot.

3 - We already covered this point earlier today, after seeing CBS buy Maxpreps and Fox buy Scout, they could not let TW or IAC make this buy.

All in all, the stock market does not reward multiples to cash, so if Yahoo! today took $100M from its cash account and bought a profitable and niche community site like Rivals.com, I welcome it.

The question now is: what next?

I think the only other acquisition that Yahoo! should consider in the short term is Facebook.  Realistically, the M&A window of opportunity for Facebook is long gone, but there’s hope, especially with Yang on the other side and not Semel. That’s not a knock against Semel, but Mark Zuckerberg will be swayed more easily hearing it from Yang - a Web pioneer - than Semel.

It’s not the end of the world for Yahoo! if Facebook files and IPOs, but if Facebook ends up in MSFT or Google’s hands, or News Corp.’s, it definitely won’t be a happy day in Sunnyvale.

But short of making one last push at Facebook, I’d say Yahoo! needs to clean house and optimize its product lines and units.  Ironically, after Semel first came on board, he lowered the company’s units from 160 or so to 7, “does GE have 160 units?” I recall him saying in a Fortune article.

Today, after years of growth and acquisitions, Yahoo! is almost back where it was when Semel arrived.

Of course, if Yahoo! wanted to do some more deals to bolster itself to remain independent or sell, I’ve done the legwork for them: here are 20+ companies waiting to be gobbled.  In fact, I also wrote “If I had a billion dollars [to build a digital media conglomerate]” which outlines some good targets as well.

The bottom line, frankly and simply, is that Yahoo! will make more money in 3, 6, 12, 18, 24 months that it does today.  So it’s not really in any desperate rush to sell, even though there’s a who’s who list of buyers waiting, especially since its market cap is stuck in a rut.  However, by leveraging its balance sheet and making a couple of moves and cleaning up its product assortment, Yahoo! can be extremely stronger in a few months without any radical changes.

Don’t forget, Yahoo!’s problem is as much of a perception matter than it is an operational or financial one.  That’s why we have long made the argument that going private might work for Yahoo! in Take Yahoo! Private, Triple Your Money by 2010.

That’s what I would do if I were running Yahoo!

Disclaimer: long Yahoo!