×
You will be redirected back to your article in seconds

Why Yahoo Is Weighing a Sale: Death and Taxes

Reports that Yahoo may be weighing a sale of its core business assets sent the company’s stock up Wednesday, but they also caused for some confusion among industry watchers. Yahoo has been struggling for years. So why pursue a sale now all of a sudden?

The answer is twofold: the company is dealing with an immediate tax issue, but it’s also facing a long-term shift in the way advertising is sold.

One pressing matter before Yahoo’s board this week is whether to continue with the planned spin-off of Yahoo’s stake in Alibaba. At one point, Yahoo owned 40 percent of the Chinese internet company, thanks to an investment it made 10 years ago. Back then, Yahoo invested $1 billion in Alibaba, and also handed the company the keys to Yahoo China.

That original investment has already been a goldmine for Yahoo, which reduced its stake in Alibaba, selling off shares and bringing in billions in the process. In January, Yahoo’s board decided that it was going to sell of its remaining stake in Alibaba, valued around $30 billion.

This decision was initially backed by investors. But last month, activist investor Starboard Value reversed its stance on the Alibaba stake sale, and suggested the company should bid farewell to its internet business instead.

The reason: Starboard doesn’t want to pay taxes on those Alibaba shares. Yahoo has been planning to structure the divestiture in a way that could be tax-free, but the IRS hasn’t been playing ball, declining a request by the company to state that there won’t be a bill in the end, after all.

The difference between paying taxes and selling those Alibaba shares tax-free? A whopping $9 billion, which Starboard and others would like to keep. It’s also a magnitude more than Yahoo’s core business is worth, which is why selling the U.S. homepage and other assets and keeping the China investment may make sense on paper.

But there’s one other factor that’s at stake in all of this: The slow death of display advertising. Yahoo is primarily an advertising business, selling banner ads across its properties, including the still immensely popular Yahoo homepage, and increasingly monetizing video with advertising as well. For a long time, Yahoo could attract premium brand dollars for premium online real estate

However, the way advertising is being sold is shifting towards a programmatic approach, with algorithms, and not agencies deciding where ads are placed and dollars are spent. The slow death of traditional display advertising spells trouble for Yahoo, as Pivotal Research Group senior analyst Brian Wieser remarked in a note sent to investors yesterday.

“Yahoo is hit hard because it historically was able to generate high pricing for its inventory,” he noted, adding: “However, in a programmatic era, efficient audience aggregation is not unique to Yahoo.”

Wieser also noted that video ads are no magic bullet for Yahoo. “To some degree Yahoo can retain “share of wallet” by adding more video inventory to its mix of ad units (as video units typically command higher prices vs. display) but this opportunity may be limited as every other publisher adds more and more video inventory to their properties,” he wrote. Add to that the fact that Yahoo severely overestimated its ability to get TV-like ad dollars for shows like “Community,” and you can see why some investors may be more than ready for Yahoo to sell.

Of course, that still doesn’t mean that there will be a buyer, and a complete sale of all essential assets may not be the only option. The company may just decide to go forward with the sale of its Alibaba stake, eat any potential tax bill, and restructure next year. But other than death and taxes, there’s one more thing certain for Yahoo: The company’s board will have to make some big decisions. Maybe not this week, but definitely in the coming months.

More Digital

  • Facebook's Oculus Quest Shows How AR

    What the Oculus Quest Can Teach Us About the Future of Mixed Reality

    Facebook’s new Oculus Quest headset is a great gaming device that simplifies virtual reality (VR), doing away with the need for an expensive PC and external tracking hardware. But with its integrated tracking, the Quest can also teach us a thing or two about the future of virtual and augmented reality. Those two areas of [...]

  • snapchat-logo

    Snapchat Takes Down Porn Lenses, May Start Cat-and-Mouse Game

    Snapchat quickly removed a handful of x-rated augmented reality lenses Tuesday, dealing a blow to efforts by adult entertainment company Naughty America to promote its subscriptions to the service’s users. However, the porn studio may not be quite done with Snapchat just yet, as it is still distributing the source files that allow Snapchat users [...]

  • YouTube logo

    Why YouTube Is Changing the Way It Reports Subscriber Counts

    Within the next three months, YouTube will change the way it publicly displays channel subscriber counts: It will provide only rounded figures instead of actual follower numbers. For example, under the change, T-Series — the Indian music-video channel that recently surpassed PewDiePie to become the most-subscribed channel on the platform — would be listed in [...]

  • Phillip Eubanks and Marc Hemeon Join

    Phillip Eubanks and Marc Hemeon Join Troy Carter’s Q&A

    Q&A, the music and tech company founded by former Lady Gaga manager and Spotify exec Troy Carter, today announced the appointments of Phillip Eubanks as Chief Operating Officer (pictured above, right) and Marc Hemeon as Head of Design (left). The pair join Carter, J. Erving (Human Re Sources, Atom Factory), Suzy Ryoo (Atom Factory, OMD) [...]

  • Simran Sethi Quits Netflix India Role

    Simran Sethi Quits Netflix India Role

    Simran Sethi, the Los Angeles-based director of Netflix international originals, responsible for India content, has resigned and will quit after a transition period. Netflix did not comment. Sources familiar with the matter told Variety that Netflix prefers an executive based in India to oversee local original content that has now grown to 11 series and [...]

  • The Secret Life of Pets 2

    ‘The Secret Life of Pets 2’ Tops Studios’ TV Ad Spending

    In this week’s edition of the Variety Movie Commercial Tracker, powered by TV ad measurement and attribution company iSpot.tv, Universal Pictures claims the top spot in spending with “The Secret Life of Pets 2.” Ads placed for the animated film had an estimated media value of $11.52 million through Sunday for 869 national ad airings [...]

  • Cory-Haik-Vice

    Vice Media Hires Cory Haik, Former Mic Publisher, as Chief Digital Officer (EXCLUSIVE)

    Vice Media has recruited Cory Haik, former publisher of digital news start-up Mic, as chief digital officer to lead the youth-culture company’s global internet businesses. Haik will be based at Vice’s Brooklyn headquarters and report to CEO Nancy Dubuc. She most recently worked at Mic, which last fall laid off virtually its entire staff before [...]

More From Our Brands

Access exclusive content