A "more focused" Yahoo might still be a fuzzy mess

Under pressure from activist investors to jump-start growth it its core advertising business, Yahoo (YHOO) said Wednesday it would unveil plans for a "more focused" company on or before its fourth-quarter earnings call expected later this month.

The Sunnyvale, California, company declined to provide any further details on its plans, which were disclosed after activist investor Starboard Value called for what it described as "desperately needed" changes, among them to Yahoo's board and senior management team.

Yahoo is under pressure to cut costs including its workforce, and along with Starboard some shareholders want CEO Marissa Mayer to be replaced. Starboard, which is calling for Yahoo to sell its core business, has threatened to start a proxy battle if the board doesn't make drastic enough changes.

Yahoo's problems, though, have been years in the making and predate Mayer, who joined in 2012 from Google (GOOG). At the time, Yahoo had gone through four CEOs in less than four years. A year earlier, it rejected a $44.6 billion takeover offer from Microsoft (MSFT); now its market value is about $30 billion.

"I don't see any quick fixes," said David Erickson, a senior fellow at the University of Pennsylvania's Wharton School of Business, in an interview. "This was one of the roses in the late '90s in the Internet space. A lot of those roses, though, the blooms have fallen off."

Robert Pavlik, chief market strategist at Boston Private Wealth, which has $7.5 billion in assets under management, likened Yahoo to a house that someone has purchased out of foreclosure that's in dire need of repair.

"You almost have a whole team come in there and take it over, rip up what's in there," said Pavlik, whose firm doesn't own Yahoo stock.

Though shares of Yahoo have more than doubled under Mayer's leadership, Wall Street analysts have noted that the price appreciation was the result of investors' enthusiasm for the expected spin-off of Yahoo's stake in Chinese Internet company Alibaba (BABA). Yahoo's stock price has plummeted by more than 20 percent since the company canceled the spin-off after the IRS didn't rule that it would be tax-free.

Magnifying Yahoo's woes is its failure to change with the times.

The site continues to attract millions of users to its popular verticals such as Yahoo Finance and Yahoo Sports, but they're disparate operations that don't really benefit each other. Newer companies such as Facebook (FB) and Google reap huge benefits from the so-called network effects that generate increasing value as more people use them, noted Michael Cusumano, a professor at MIT's Sloan School of Management.

"Yahoo has never been able to do these kinds of things," Cusumano said in an interview. "They just have these stand-alone properties ... (some of which) are valuable in and of themselves, and that's why they can sell a few billion dollars worth of ads. They don't really feed each other, and over time user activity on the Internet has shifted to other properties."

Under Mayer's leadership, Yahoo has spent more than $2 billion on dozens of acquisitions including the $1.1 billion purchase of blogging site Tumblr. But according to many observers, she has little to show for her efforts. For some, that's reason enough for her to be let go.

"Marissa Mayer has failed to implement the right strategies during her three year tenure, which has resulted in low investor confidence and selling pressure in the stock," according to a client report from market watcher The Edge Consulting Group. It argues that Yahoo "should concentrate on bringing a new competent CEO, who could first focus on revamping the core internet business, thereby generating interest amongst potential bidders."

Though Starboard castigated Yahoo for failing to engage with potential buyers, The Edge Consulting noted that finding a buyer may not be easy considering "the number of moving parts associated with the company as well as poor performance of the core internet business."