A major shareholder in Yahoo, Starboard Value LP, wrote a letter to CEO, Marissa Mayer and blamed top management of the company over its underestimated share price.it also applauded Marissa Mayer’s verdict of splitting company’s holdings in Alibaba in an individual tax free unit mentioning it as a good step. However, it also mentioned the area which requires improvement in its concern regarding stock valuation. Starboard recognized the less change in company’s share price after its announcement to spin off. This is mainly because of the management reluctance to take a bold step to improve its core business and effectively using its other assets.
Starboard have faith in that still there are various opportunities at company’s disposal, if followed accurately will reflect almost $11 billion value in its share price, which will indicate a 27% increase in its current value of stock. Starboard in its letter to Ms. Mayer have highlighted some steps that will help the company to exploit these chances. Therefore, the California based company should straightaway start working on improving its cost structure, which it has been postponing for a while now. On the whole, cost reduction steps are vital by the way company’s EBITDA declined 3% and 27% last year in spite of the company investing $4.8 billion in various acquisitions.
The postponement in cost reduction has also obstructed the estimated increase in company’s revenue for the coming two years. Starboard thinks that the company’s incompetent cost model is significantly affecting its ability of posting more profits. According to them, Yahoo can cut its expenses by almost $330 million to $570 million every year. This will help the search engine company to deal with the $490 million increase in expenses during the last 2 years, and will help the company to get on the track to profitability. The cost reduction would make the company realize its real value, which according to Starboard is around $5.7 billion or almost $6 per share.
Besides restructuring its cost model, it should also establish its intellectual property portfolio. At the moment, Yahoo has the ownership of various patents like e-mail, search engine, and advertising.
Finally, Starboard also recommended management of Yahoo to engage in tax free spinoff of its Japan stakes in the same manner it separated Alibaba holdings. By acting upon this, the company will be able to gather around $2.6 billion to almost $3.1 billion which is a lot more than its EBITDA of $580 million.