CEO, Marissa Mayer, has finally heeded to investors mounting pressure and will consequently spin-off Yahoo! Inc. (NASDAQ:YHOO)’s remaining stakes in Alibaba Group Holding Ltd (NYSE:BABA). The spin-off will see Yahoo shift focus to its core business while also holding on to the remaining stakes in Yahoo Japan. During an interview on CNBC, The Motley Fool Senior analyst, Rick Munarriz, questioned whether the spin-off call came too early, to haunt Yahoo in the near future although, it is still the right call.
The spin-off will allow Yahoo! Inc. (NASDAQ:YHOO) to stay clear of billions of dollars in future taxes but also sure to intensify pressure on Mayer, to rejuvenate Yahoo’s core business that has been the subject of scrutiny in the recent past.
“I think in a few years if Alibaba Group Holding Ltd (NYSE:BABA) keeps growing, and Yahoo! Inc. (NASDAQ:YHOO) stays stagnant; we will be saying oh we should have held on a little bit longer. Yahoo once held a big stake in Google Inc. (NASDAQ:GOOGL) that it sold too soon but right now it is the right call. Marissa Mayer needs to do this, I mean this is the third year in a row where revenue has been declining,” said Mr. Munarriz.
The spin-off is on the other handset to put more pressure on Yahoo, which continues to experience headwinds in the core ad business. The business seems to be shrinking amidst increasing competition in the space, seen by it failing to meet analyst expectations in the fourth quarter. Munarriz maintains Yahoo! Inc. (NASDAQ:YHOO) will have to put, to good use the huge cash balance at its disposal as one of the ways of offsetting any further decline in the core business.
Despite performing well in the search business, Yahoo has continued to struggle on the display ads business that has continued to register declining revenues. A decline in revenue from the desktop display ads business has forced Yahoo! Inc. (NASDAQ:YHOO) to shift its attention to mobile, social and native ads business as one of the ways of offsetting a further decline.
Munarriz maintains Yahoo! Inc. (NASDAQ:YHOO) needs to devise ways of ensuring future growth is achieved on mobile, while ensuring marketers pay top dollar for mobile ads.
“It is growing right now in Mobile, which is great in the fact that, that is what everyone is using these days. But it is bad in that, companies are paying less to reach people on their smartphone and tablets as they did in the old days on the desktop. You are seeing that the actual ads they are serving climbing, but you are seeing revenue per ad something that we are also seeing with Google. It’s not a unique thing to Yahoo, going the other way,” said Mr. Munarriz.
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