For Marissa Mayer, Yahoo's woes keep deepening

When Marissa Mayer was named CEO of Yahoo (YHOO) in 2012, Lawrence Hrebiniak, an emeritus professor at the University of Pennsylvania, thought the Internet company, which had a history of squandering opportunities, was headed on the right track. Now, he longer feels as optimistic.

"They are muddling along," he said. "(Mayer) hasn't led the company where it needs to go."

Yahoo's latest quarterly profit report provides little in the way of encouraging news. The company is shrinking in headcount and in focus. Its workforce will be roughly 42 percent smaller than in 2012, while it cuts annual operating expenses by $400 million.

"These actions are part of a strategic plan designed to simplify the company's business and narrow its focus and to improve operational and cost efficiency," the company said in a regulatory filing. Yahoo also said this week that it's exploring strategic alternatives, along with pursuing a reverse spin-off of its Internet business.

But even as the company mulls all "these actions," it remains unclear what it actually plans to do, which Hrebiniak said is Mayer's fault.

His view is backed by some of Yahoo's biggest shareholders, like activist investors Starboard Value and Spring Owl Asset Management. They've been ratcheting up pressure on Yahoo in recent months for it to come up with a clear plan to sell its core Internet business.

To be sure, Yahoo's problems predate Mayer's tenure. The company reportedly had chances to purchase both Google (GOOGL) and Facebook (FB) before they became the Internet behemoths they are today. In 2008, it rejected a $44.6 billion takeover offer from Microsoft (MSFT), arguing that the offer substantially undervalued the company. Yahoo's current market capitalization is about $26 billion.

After the company went through five CEOs in as many years, expectations were high for Mayer when she took over. After all, she had gained notoriety as one of the architects of Google's success. Aaron Chatterji, an associate professor at Duke University's Fuqua School of Business, argues that those expectations were too high given the company's history.

"I think famous CEOs like Marissa Mayer spark too much optimism on the way in and get too much blame on the way out," he said. "Given the situation today, my own view is that turning around Yahoo is a long-term project, and she deserves more time to execute her strategy. Any CEO of Yahoo will need time to execute their strategy since there are no quick fixes that I can think of."

Under Mayer's leadership, shares of Yahoo surged for a while, although as analysts have noted, that was more because of investors' enthusiasm over Yahoo's stake in Chinese Internet hotshot Alibaba (BABA) than about Yahoo's core business. But Yahoo was forced to abandon its plans to spin off its Alibaba stake after the IRS ruled that the transaction wouldn't be tax-free.

According to Scott Kessler, an analyst with S&P Capital IQ, the company wasted a year promoting the spin-off, undermining its credibility with Wall Street. "Yahoo hasn't been necessarily viewed as the most shareholder-friendly company," he said. "The company hasn't been overly enthusiastic about considering strategic alternatives. It's not an easy situation."

And it's not like Mayer has been doing nothing. In recent years, Yahoo has made dozens of acquisitions, including its $1.1 purchase of blogging site Tumblr. Mayer has also focused on businesses she has dubbed Mavens (mobile, video, native ads and social). Even so, Yahoo continued to lose ground against competitors.

"Google ran way with the search market because Google considers itself a technology company," said money manager Cathie Wood of Ark Invest. "There was no way that Yahoo was going to catch up. That was clear."

In addition to the pressure Mayer has gotten from the activist investors, she's also dealing with a steady stream of departures among high-level executives and board members, which is undermining her credibility even further.

While Mayer has easily outlasted Yahoo's other recent CEOs, she still doesn't have much in the way of positive results to show for her tenure.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.