Yahoo (YHOO) has fired Carol Bartz. There was a lot of criticism of Bartz in the media but the media may have missed three key points. The three key points are:
- Bartz missed the mobile revolution. Yahoo has several heavily visited sites, but none have been transformed for the new mobile world.
- Bartz missed the social media revolution.
- Yahoo has large assets in Asia. Bartz missed the basic tenet of doing business in Asia – personal relationships count for a lot more in Asia than in the West.
There is another speculation in the media that appears to be wrong. Since a permanent successor to Bartz was not named, there is speculation in the media Yahoo is up for sale. The reasoning goes that if Yahoo was not up for sale, it would have named a permanent CEO.
Based on the information we have received from a number of sources the foregoing speculation is wrong. The trigger for Bartz’s firing is that Yahoo does not appear to be meeting its financial targets. There are also reports that Chairman Roy Bostock has lately been getting more involved in details. There are also reports that tensions between Jerry Yang and Bartz had increased over the last few weeks.
Some of the scenarios that may occur include the following:
- Yahoo divests Asian assets. The problem with this scenario is that Yahoo is unlikely to get a fair value in a fire sale.
- Private equity buys Yahoo. The question here is how long a life is still there in the advertising revenue stream to support debt.
- AOL (AOL) buys Yahoo. AOL is a lot smaller than Yahoo, but has a good CEO and appears to have a vision. Our opinion is that this is the most likely scenario.
- Microsoft (MSFT) buys Yahoo. Considering all of the challenges Microsoft is facing and the fact that Microsoft already provides search for Yahoo, this option does not make much strategic sense for Microsoft.
Our models indicate that if there is significant strength in Yahoo stock, investors should sell into the strength. Afterwards, investors should keep an eye on both Yahoo and AOL for buying if significant weakness occurs. If and when all six screens of ZYX Change Method are met, which can happen only on considerable weakness, we will issue a buy signal on the real time feed here for both Yahoo and AOL.