In about a month, Marissa Mayer will celebrate her one-year anniversary as CEO of Yahoo! (YHOO). All (stock market) eyes have been on her every move, as questions over whether she will be able to pull off what a number of previous CEOs failed to do - right the financial ship of the web portal to increase the shareholder value.
She had a large cheering section, especially since she hailed from Google (GOOG). As a member of the team that propelled that company to be a multi-billion conglomerate in a matter of years, she was seen as a natural fit in helping the beleaguered Yahoo!. To give you example of how much of a rut Yahoo! seemed to have been in, it had not above $20 since 2008.
We're better seeing a main strategy Mayer is using to reach goals of making Yahoo! again a formidable player in the tech space. And it entails mergers and acquisitions. However, some of her moves as of late are raising eyebrows.
Tumbling With Tumblr
Mayer was able to just about single-handedly snare the blogging network platform Tumblr last week for the ridiculous price of $1.1 billion. I say "ridiculous" because the purchase was for a company that had not earned any significant profits, yet alone a billion bucks. Still, Mayer saw it as a purposeful buy. Benefits of the acquisition include Tumblr being able to deploy Yahoo!'s personalization technology and search infrastructure to help its users discover creators, bloggers and content.
On her Tumblr page, Mayer wrote about the acquisition, "In turn, Tumblr brings 50 billion blog posts (and 75 million more arriving each day) to Yahoo!'s media network and search experiences. The two companies will also work together to create advertising opportunities that are seamless and enhance user experience."
Therein lies the rub, as Yahoo! will be seeking ways to get revenue out of Tumblr through advertising and that's something that Tumblr users (web surfers in general) abhor. Still, in April, Tumblr began running native ads (ads that show up in posts or news feeds) on customers who accessed the site via apps on their Google Android or Apple (AAPL) iOS devices. Clearly, CEO David Karp recognized what most of the industry does, and that is the best way to monetize subscribers is through putting ads on mobile devices.
Now Hulu Hooping
Yahoo! has now set its sights on Hulu, which streams movies and TV shows. It's offered between $600 million to $800 million, according to Mashable. Unlike the previous acquisitions in which Yahoo! was the only major player, the possible Hulu deal has many suitors. They include Direct TV and Time Warner Cable. What I find interesting here is that Yahoo!'s offering price is considerably lower than what it paid for the barely-revenue generating Tumblr.
This isn't the first time Hulu has drawn a crowd of bidders. In fact, this isn't the first time Yahoo! has put in a bid for it. Business Insider reported that Dish Network beat out Yahoo! and Amazon (AMZN) with a $1.9 billion bid in 2011. However, it was the almighty Google that put all those bids to shame, coming in with a whopping $4 billion, according to Business Insider.
No matter because Hulu accepted none of these offers, and we find ourselves back here with the bidding wars starting again. Given how much suitors were willing to pay two years ago for Hulu, it's odd that Yahoo!'s offer would be between $600 million and $800 million. That's not small change, but consider this. Hulu's revenues in 2012 were roughly $700 million, and the company says they've grown more than 65% , which is an acceleration over 2011 growth levels.
I see Hulu adding far more value to Yahoo! than Tumblr, which begs the question as to why Yahoo!'s offer is lower for it.
Pricing Strategy Misses Charging Opportunity
This brings me to another question about Yahoo!'s financial choices. When Yahoo! announced it was buying Tumblr, it also announced it was making adjustments to Flickr, an online photo sharing service. The changes include revamping the layout, adjusting prices and increasing storage capacity.
It is the later that I take issue with. The increase in storage space was bumped to a gigantic one terabyte. To get an idea of how much space that is, consider this. You could store a million pictures, depending on size. This is unrealistic, yet unprecedented in that no other cloud service offers such a perk. My issue is that it's free. This seems like a prime opportunity to monetize users.
It seems Yahoo! is banking on the other changes it's made to Flickr to be the money makers. This includes advertising. Ads will appear on users' pages unless they pay $50 a year. Still, viewers of those users' pages will see the ads. Previous subscription for Flickr Pro accounts offered unlimited storage, with no ads, for $24 a year. So when it is compared to the new $50 annual subscription, the change amounts to a price increase. For $500 annually, users get two terabytes of space, and no ads. You can count on many users frowning upon this.
When you consider the growth in the photo-sharing space, changes being made on Flickr are good news, especially if they serve to further separate Flickr from the rest of the bunch. One of the company's in the space is Instagram, which Facebook (FB) bought last year for $1 billion. That transaction was a mix of stock and cash so its value has fluctuated since it was inked prior to the company's IPO. Noteworthy about that transaction is that Instagram, at that time, had been valued at just $500 million.
Does this mean by overpaying for things, Mayer is putting herself in good company?
Time will tell. If her moves continue to move the stock up, shareholders may not complain. Naturally, if the returns are seen soon, Mayer may find herself in a position she hadn't been in so far as a CEO - in the crosshairs of shareholder backlash.