I can turn Yahoo! around claims hedge fund manager

Investor sends hate letter to Marissa Mayer

An "activist investor" has sent a 99-page hate letter to Yahoo! CEO Marissa Mayer arguing for her ousting and outlining a range of changes that would boost the troubled company's share price by $30 a share.

Despite five CEOs over ten years having tried and failed to turn the one-time online giant Yahoo! around, the head of New York hedge fund SpringOwl Asset Management, Eric Jackson, reckons he has the answer.

And that answer is: bean-counting.

SpringOwl is only a minor stakeholder in Yahoo!, but the 99-page presentation [PDF] has garnered attention thanks to its leak to the Wall Street Journal.

The presentation is notable for several things. Most significantly from the investor perspective, it argues against two plans put forward by two larger investors, both of which argue that Yahoo! should sell off its "core" services. Instead, it says there remains significant value within Yahoo! that can be tapped.

But more unusually, it also embarks on a highly personal attack on Mayer, picking up even tiny details to question her leadership. One slide is dedicated to impugning Mayer in her purchase of online fashion website Polyvore.

Admittedly, paying $230m for the tiny company is just one of a long list of misguided Yahoo! purchases since Mayer took over, but the presentation explicitly suggests the deal happened solely because of Mayer's personal relationship with its CEO Jess Lee.

Highly personal attacks on Mayer. New management is the answer! (Again)

It lists all of Mayer's Yahoo! share sales (in which she made an obscene amount of profit); it mocks her acquisition approach; her sponsorship deals – in fact the entire presentation seems built to put the worst possible light on Mayer personally in an effort to paint Yahoo! the company as a good but mismanaged company.

The presentation alternates wildly between intelligent analysis and flawed cherrypicking of data. At one point, Yahoo! is compared to Google, but when another data point doesn't make the right argument, it is ignored. Likewise, Facebook and Twitter.

What does it propose?

For all the bluster, the solution outlined in the long presentation reads more like an accountant's grumblings than a strategic vision.

It complains bitterly and repeatedly about the provision of free food at the headquarters, and company iPhones – both of which are normal practices at large Silicon Valley firms.

"Mayer provides free food for Yahoo!'s workforce. In Sunnyvale, it's catered by the Uber-Luxe and organic Bon Appetit. At 1.5 meals a day per employee, Mayer's perk has cost $450M over 4 years. That's half an Instagram right there," Jackson rants.

It points accusingly at a Yahoo! Christmas party that cost $7m, and a Wizard of Oz photoshoot that costs $70,000. These are terrific details for news reports ... but not worthy of a serious investor analysis.

And the solutions are also out of the beancounter cookbook. Yahoo! should cut its workforce dramatically, it argues: the easiest but also least insightful way of saving money. He proposes cutting 9,000 of the 11,000 employees. That would certainly save $2bn but it would almost certainly kill the company at the same time.

Once the workforce is cut, it should lease the now-empty parts of its headquarters it no longer needs. No more free food! And no more acquisitions! And... and... You can bet that if Jackson had a rundown of Yahoo!'s stationery needs, he would have outlined how to ration pencils to save a few pennies.

Hang on! Mocking Silicon Valley ego-spending is our job, not investors'!

That's all good for saving money, but what of Yahoo!'s future? The answer, according to Jackson, is not to sell off the core business but get it back to $1bn revenue a year from the current $600m. And how do you do that? With new management.

According to Jackson, bringing in someone focused on the bottom line instead of someone trying to leapfrog Google would lead to four times greater earnings, although most of those earnings appear to come from simply not spending.

Yahoo! should "milk its PC-based revenues," but while simultaneously acting like a company in receivership, it should also branch into mobile. And "double down on the winners it possesses in Finance and Sports" by creating new apps. Except, a different part of the presentation goes into some length over how Yahoo! has failed to produce compelling apps.

In short, just like everyone else, and just like Mayer, Jackson has no idea what needs to be done to "save" Yahoo! He just wants drastic cost-cutting in order to boost the share price and so make more money for the company's shareholders than he would get by selling off the core business.

While the presentation does shine a spotlight on all the mistakes Mayer has made – and she has made many without sufficient compensating successes – it doesn't really add anything to the general sense that Yahoo! is an online dinosaur whose days are numbered.

Wait! No! Jackson yells to himself in the presentation. "It's nonsense to think Yahoo! can't be turned around in public just because they haven't for the past 4 years," he writes before pulling out a tweet from someone you've never heard of.

She tried. It's impossible. It's not her fault: @jonsteinberg, CEO of DailyMail.com, North America

Jackson's response? "It's not impossible at all, Jon. That's like watching Shaq shoot a few free throws and concluding it's impossible for all NBA players to make free throws."

And that pretty much sums up the quality of analysis on display in this latest non-solution solution to Yahoo!'s troubles. ®

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