18 Questions for Yahoo Management

Includes: MSFT, YHOO
by: TMT Analyst

Yahoo! (NASDAQ:YHOO) is scheduled to host an analyst day on Tuesday, October 27th, the first since 2006, when Panama took center stage. Since then Yahoo has gone through several growing pains and has reached a point where its future as an independent company rests on a turnaround in the display business and the stated benefits from the Microsoft (NASDAQ:MSFT) deal. If both fail to be fruitful, the firm will likely be folded into the hands of Microsoft.

Investors will give Yahoo about two years to emerge from its desperate state so Bartz has a decent runway ahead and several tools at her disposal that if used wisely, will enhance shareholder value.

As for the analyst day, the following are the 18 questions I would want management to answer:

1. Management believes that Yahoo! is a mature business. Internet advertising is only 6-10% penetrated depending on what estimates you use. eCommerce only represents a single digit percentage of retail sales. Given those numbers, the Internet as a medium is far from mature. How can Yahoo! return to growth?

2. The display business rebounded sequentially in both 2Q09 and 3Q09 and a fundamental shift occurred in 3Q09, whereby guaranteed inventory outpaced non-guaranteed inventory. How sustainable is that shift? Is it industry wide or specific to Yahoo!? How can you provide confidence that the display business, despite its secular issues, is headed for a turnaround that is not cyclical?

3. The search partnership with Microsoft failed to initially delight investors but some are slowing coming to terms with the longer-term margin and free cash flow benefits of the deal. When do you anticipate that the deal will receive regulatory approval? What arguments have you heard against the deal? When exactly do you believe the paid search component will be implemented and which markets will roll out first? How many search engineers will remain at Yahoo!?

4. How do you plan to differentiate yourself from AOL, whose focus is display advertising and whose search business is outsourced to Google (NASDAQ:GOOG)?

5. Facebook and Twitter have grown usage exponentially and have taken mindshare from Yahoo! over the past two years. How does Yahoo plan to be relevant in the newest forms of online media? How can Yahoo! compete with these two companies? Does it need to compete with them or is a partnership sufficient?

6. Yahoo! has shuttered or sold multiple business units over the past two years. What other business units can you part ways with that would not sacrifice longer-term growth? Is Hotjobs a business worth including in the Yahoo! portfolio?

7. How does Yahoo! plan to remain competitive through innovation? In what areas are you focusing your engineering talent?

8. Would you consider selling all of Yahoo! to Microsoft?

9. What is Jerry Yang's role in the organization today?

10. How do you plan to motivate and incentivize your employees?

11. Yahoo has sizable monetizable Asian assets. What are the long-term plans with these assets? How does Yahoo! benefit from holding on to those assets?

12. Google, Amazon (NASDAQ:AMZN), and eBay (NASDAQ:EBAY) generate 50% and more of their revenues from international markets, whereas, Yahoo only generates 30% of gross revenues outside the U.S. What are Yahoo!'s plans to grow its international operations?

13. Yahoo's has many relationships with mobile carriers but Google has stolen Yahoo's thunder in the mobile space with the advent of Android. How can Yahoo regain its momentum in the mobile space?

14. You have $4.5 billion in cash on the balance sheet and no debt. What are the best uses of your cash? Investments in the core business? If so, how much, and at what scale? Share repurchases? Acquisitions, and if so, what is attractive to Yahoo? What holes need to be filled? Would you consider a one-time dividend as the cash balance builds?

15. What is your relationship like with Google? Do you communicate with Google's upper management?

16. Outside of the benefits of the Microsoft deal, how will margins, cashflow, and earnings improve? How can you squeeze more efficiencies out of the non-search businesses?

17. Should you lever the balance sheet, and if so, what is the optimal ratio?

18. What are your longer-term margin goals?