There will be plenty of digital ink spilled today on Carol Bartz taking over at Yahoo.Â With no apologies we offer our own 2c.Â We did spend some time at the company last year which makes us feel like we have some insight even though we are far from experts on the company.
Lots of damage has been done over at Yahoo over the last few years.Â It’s well known that many of the best people have moved on.Â In short, Yahoo is a mess.Â But then again isn’t that what many investors want?Â
That the stock wiggled down yesterday is hardly any credible indication of how good the potential fit will turn out to be.Â Many cited the fact that Bartz has no "Web 2.0 or deal making" chops to help Yahoo succeed.Â What Yahoo needs first of all is adult supervision and some common sense decision making at the top to begin to restore a sense of coherence and possibly hope after the Semel destruction.Â Our guess about near-term stock weakness is that the appointment signals that the company won’t be sold in the very near term, a blow for speculators.
What’s required over the next 12-18 months is simple enough that Bartz will probably implement the changes and pull them off.Â We’re talking about management 101 here.Â Establish a framework, measure results, reward performance.Â [Believe it or not none of this exists now in terms of decision making at Yahoo.]Â That alone can have a dramatic positive effect on how the company operates and is viewed.
The other side of the coin is simply focusing investments and execution on where Yahoo can get returns and build advantage.Â Some of these may be tough choices but many will be easy.Â By divesting and focusing their efforts we’d expect Yahoo to improve their poor ROIC and margins over time.
In thinking about this in terms of "expectations investing" the risk/reward on Yahoo seems at least interesting.Â We don’t know Carol Bartz personally.Â If she is another Ellen Hancock (Exodus) or Meg Whitman then Yahoo is toast but if her basic management skills are real the stock could easily revisit the 20’s again.Â Well short of the $33 Microsoft offer but not bad from current trading levels of $12.
We would expect Bartz and the team to be strongly tempted to take one last whack at lowering expectations since it’s their last penalty-free opportunity.Â Having over $3B in cash gives Yahoo some power to shift things around and make acquisitions once they figure out what strategy elements to focus on.Â
There are hardly any shares sold short (36M out of 1.4B shares) so if the shares appreciate short-sellers could tend to increase supply of the stock.Â However the ability of Yahoo to make deals may keep short-sellers at bay.
If the company comes out with a strategy that is better than a 90 day "listening tour" we will take the time to run our intrinsic value analysis to further pin down the potential upside for the shares.
[At the time of this writing we have no stock position of any kind in YHOO.]