Buffett is no fool. Berkshire is providing the financing to Dan Gilbert's group and will receive guaranteed interest as well as an option to convert to equity. I'm sure that financing is jammed packed with warrants and covenants.
Buffett has basically parlayed the prestige of his name into sweetheart deals with provisions that no other company could get (eg. his investment in Goldman Sachs).
Yeah - this is likely a place for Buffett to park some cash with sensible returns/risk for Berkshire. It is not likely to be Buffett jumping into the tech business.
My guess is that Buffett's team looked generally at the risks within Yahoo and hedged them with generous covenants on the financing.
I am surprised that Gilbert didn't get Wall St financing. I would think that analysts at the big banks could structure a deal more carefully aligned with the underlying risks.
It's probably not just the sheen of his name. A very large, wealthy, & motivated investor can be an asset. I vaguely remember an old story about him; one of his companies was having trouble with their paper vendor. He found out, and promptly bought the paper vendor. Problem solved.
From a business perspective (he says having no business experience or expertise), Yahoo is a collection of assets: Code, people, branding, community. They aren't in first place, and they aren't profitable at the moment, but I think the case that they have zero or negative value is a bit simplistic.
Put it another way: Would you rather throw a pile of money at trying to build a collection of code, talent, business contracts, and users from scratch, or would you rather buy an EXISTING collection, on the cheap, and work instead to flip it into a profitable business? Both are risky ventures, but everything I've seen says it's harder to build from scratch than it is to keep existing users.
Perhaps your answer is that you'd prefer to build it from scratch, but do you see why - if the answer takes some thought to determine - that someone else might come to a different conclusion?
Heck, even if you want to completely toss the business model - even if you want to toss everything they've done and what they are trying to do - I'd imagine the servers, in-house expertise, and collected code and utilities, not to mention any purchased or licensed software, would make Yahoo worth considering as an acquisition.
You don't need to grow to provide a decent dividend to shareholders. You just need to reliably produce a profit. If your dividend represents an acceptable ROI it doesn't particularly matter if you are not growing.
Of course having a good dividend AND capital growth would be desirable but shareholders won't complain too loud about a company that just spits out dividends year after year.
That's patently false. Pun intended. Innovation is not limited to startups. Underneath the hood, there's an absolutely massive amount of r&d and innovation that goes into Intel's chips year on year. Google's progress in machine learning for speech and photos is impressive. The big companies often do very well innovating. Intel producing another innovation that drives a billion dollars of sales isn't as exciting as a startup doing the same, but both are real.
You're talking about the economy in a "Plinko chip" sort of way, and I'm talking about community building. If you want good products and a well paying society, you need to promote more individual nodes rather than giant motherships. And by "promote", I mean actually want it instead of talking about how the rules apply to the current system.
You zoomed in on a quarter, which is not a good way to look at it. From an annual standpoint, they have been profitable for each of the last 4 years, excluding 2015. 2015 Included a massive impairment of goodwill (which is not a cash expense) at $4.4B[0] and would have otherwise been profitable.
Yes, of course it has some teardown value. Billions in Ali Baba stock if nothing else.
But that's not what you're suggesting - doubling down by doing more of what they've been doing. This assumes that what they're doing has some useful foundation you can find and build on.
There are essentially zero Yahoo users, especially of any service that's remotely monetizable. People who use Yahoo are people whose ISP set it as their default homepage ten years ago.
You can hear the fail in their words. They're talking about retaining users, not offering value. They still want to be a portal (ie the base of every action you take), something users didn't want when it was new.
That's the business legacy you'd have to reverse before you stop producing negative-value, let alone actually produce something that may actually be valuable.
My understanding is that's the one thing that is not up for sale these days, and that all relevant discussions are regarding the spinoff of their core web businesses.
A fair number of people use Yahoo mail and Yahoo search. It's not a majority of the market by any means, but it's still tens to hundreds of millions of users all told.
I don't know how monetizable it is, but yahoo groups is still very actively used. It's amazing the number of times I'm trying to find information about a bit of software or hardware, and find myself landing on a yahoo groups archive.
Yep. I regularly use http://finance.yahoo.com/ and http://sports.yahoo.com/fantasy/ when in season. The finance site is one of the better ones. Google has not updated theirs in so long I'm surprised they have not just turned it off.
slight variation: I was talking about Yahoo ABSENT the profitable sub-groups. The part that apparently has negative value.
I fail to believe that Yahoo, minus Ali Baba and Fantasy sports and similar bits, is actively NEGATIVE value. It might be poorly run and have the poor actions you're talking about. (okay, it DOES have the negatives you mention).
That doesn't mean what's there "should just die" - it's a business opportunity to take that and use it profitably.
MySpace was bought for exactly that reason. It has a large enough number of returning monthly visitors (accessing archived photos and what not) for that data to be valuable to the adtech vendor that bought it. If you're looking to acquire lots and lots of customer data, there are far cheaper ways to go about it than trying to build your own social network from scratch.
Except for Finance and maybe Tumblr, aren't all these services fading ?
* Yahoo Answers
Quora ( 100M users [1] ) and Stack Exchange is now the default question & answer sites.
* Yahoo News and Yahoo Sports
Google news and search ( 44% of Google searchers scan the news results [2] ) already provide these features. I used to use Yahoo Live Scores, but now I use Google.
* Yahoo mail
Gmail ( 1B users [3] and grew 100 Million users just last year )
* Flickr
Google Photos ( 100M users in 5 months [4] )
It seems like Google Finance is losing [5] as they see it as part of search but it appears there is a need for a good separate product here. Tumblr looks to be a runaway success ( 227 million registered accounts, more than double the number of accounts a year prior and more than 37 million unique visitors [6]), no match for Wordpress yet ( WordPress.com records 126M unique visitors per month [7] ), but the social aspects looks to work in Tumblr's favor.
> Google news and search ( 44% of Google searchers scan the news results [2] ) already provide these features. I used to use Yahoo Live Scores, but now I use Google.
Yahoo Sports is a lot more than just sports news and scores. The traffic is heavily driven by fantasy sports, which Google doesn't have.
They run a whole bunch of really useful services. Their personalized homepage is still great.
If they would just maintain what they've got and stop swinging for the fences - turn into something like the Apache Foundation was in their early years - they'd provide a lot of value for a lot of people.
This community often seems to think that something is dead just because people don't use it in SCs or in startups, completely forgetting the average person. By their logic Windows is dead, Oracle is dying etc. the only successful companies are Google and Apple.
isn't yahoo google's failed retarded little brother? I don't see them becoming anything, anytime soon. The only point of this acquisition would be to pivot the whole thing hard or to dismantle it and spread its resources to other assets
I find these things amusing "according to people who aren't authorized to speak publicly" except that they are talking to a reporter so that's kinda public. But really what they want to do is let potential other players know that "oh yeah, its real, we're bringing it and we're gone sell this thing, if you want a piece of this you better wake up and call us or your going to lose out." kind of vibe which attempts to incent other buyers to please make a bid and bring the price up. According to the Credite Suisse banker who helped with a transaction I participated in the ideal number of buyers is 3, and it helps if at least two of them both know each other and are competitive (think Benioff and Ellison for example).
I can see Microsoft's goal, add it the Bing group and give Bing the portal as well as it already has all the search traffic. Not so clearly on Berkshire though, breaking it up works if you can get it at the right price. I could also see IAC wanting to play, they could use a portal property to link all their front ends together.
I really wish the restrictions can be reduced or removed so board of directors (like @pmarca) can tweet more on the companies, including on things like this.
> I find these things amusing "according to people who aren't authorized to speak publicly" except that they are talking to a reporter so that's kinda public.
Honestly, it is elegant, simple, and serves the purpose they need. I have worked with a few agents and talent representatives and this is the ideal they seem to shoot for even if they are not in such a tier of excellency.
It works. It's not overdesigned. Compare http://motherfuckingwebsite.com/ , or think back to how amazon or ebay's pages looked for the longest time. More pages should look like that.
It's not obvious what the acquiring group mentioned in this article would do with Yahoo after they've bought it, to make it worth the price. They'd have the 5th most visited domain name on the Internet, but as Yahoo has demonstrated, visits don't automatically turn into money. (Twitter has a similar problem, and sits at #8, but they have a social aspect that Yahoo doesn't.)
Unless Alibaba comes with the purchase at a discount, or someone wants to acqui-hire whatever talent hasn't already fled, an acquisition doesn't seem even remotely sensible.
A few quick checks suggest that Yahoo's searches-per-day traffic is still decent, at 12.4% of the market (2.2 billion searches/month); perhaps redirecting that to some competing search engine might be worth it for a cheap enough price.
It's funny you mention Alibaba. I did a little digging, and it turns out that Softbank (who owns ~35% of Alibaba to Yahoo's ~24%) has a 35% stake in Yahoo Japan. Very interesting stuff.
Yahoo! Japan is a separate company from Yahoo, Inc. It was formed as a joint venture between Yahoo, Inc. and SoftBank, thus both of them holding a stake.
Probably valuations dropped low enough that yahoo can be valued as a classic media company instead of a tech company.
What generally scares Buffet from tech is that the price of tech stocks is greatly inflated to reflect expectations of future growth. Buffet is very skeptical of inflated expectations of future growth.
But I do not think there is any great expectations of future growth in yahoo. In fact many analysts say that if you strip out the valuable asian assets, the value implied by the market for Yahoo's US business is about zero or even negative.
So the answer is that Yahoo is not really a tech stock anymore, but the traditional definition of that term. At least it is not priced like a tech stock.
> In fact many analysts say that if you strip out the valuable asian assets, the value implied by the market for Yahoo's US business is about zero or even negative.
If the value implied by the stock price is zero or negative, then even buying the company and selling off the office furniture nets you a tidy profit.
More realistically, it's very likely that if a company has negative value -- ie, that someone would pay you to take it off their hands -- then it is severely undervalued.
> if a company has negative value...then it is severely undervalued
Or severely fucked. Every company on the verge of bankruptcy skirts with negative equity value.
As for enterprise value, there are oil E&P companies trading below zero today. One must consider the costs of diligence, maintaining the asset until oil goes up and environmental clean-up. The economic value of some companies is questionable.
On Yahoo!, there is a difference between minority-stake investing and buying companies. Some managers are terrible. A hundred million dollars put in a box, put in a corporation, and handed to them is worth zero if they can't be replaced before the cash has been burnt.
I don't think that's true. Even badly performing companies like Yahoo! aren't only priced as a sum of their physical assets, but also intangible ones, e.g. the skills of their employees, their market position etc.
Someone actually did a calculation of this just recently, like about a month ago max. Adding up the Alibaba stake, the Yahoo Japan stake, the office and associated infrastructure, that summing those up totalled far less than the current share price. Somewhere around -8 billion IIRC.
It was a Bloomberg article[1] of rather disappointing quality. The authors apparently just took the market values of BABA and Yahoo! Japan, multiplied by Yahoo!'s percentage stake, added some unsourced number for cash and assets, and arrived at -$8 billion. They even included the statement, "The implication: Everything you think of as Yahoo—apps, websites, employees, computers, buildings—has a negative value."
It's terribly sloppy logic that led to this, as a pass through Yahoo!'s balance sheet[2] demonstrates. "Long-term Investments", which I presume includes their stakes in Alibaba and Yahoo! Japan, is listed as $34B (not the $38B in the article). Adding all other assets gets to a grand total of $44.1B. However, that is gross asset value, not book value. Now you have to take off the liabilities. Yahoo! apparently has $13 billion in deferred income tax on the books. It has about $13B in other liabilities, cutting its book value to about $28.4B and giving Yahoo! a price/book ratio of 1.21, not 0.81 as that analysis erroneously concluded.
You can't just compare gross assets to stock price and expect anything meaningful, and you sure as hell can't compare the values of a couple cherry-picked assets that sum up greater than the net equity and claim the entire rest of the business is worth a negative amount. I find it pretty shameful that Bloomberg actually published that clickbaity bullshit.
Yahoo!'s problem right now is not that their traditional businesses are unprofitable. Their problem is the massive liabilities they have on their books.
Actually it sounds as if he would be buying convertible bonds according to the article. This means he will have the opportunity to convert his bonds into equity at some point in the future (at some share price in the future) if he chooses to exercise this right.
Otherwise he will indeed just be collecting interest.
So he is assuming Gilbert & company would be able to turn Yahoo around, churn out some cash and pay the interest? That would be very long shot given the history.
Valuations dropped enough for it to be a sensible buy. Buffet stated before that he does not understand why tech valuations are so high based on the fundamentals.
eh, the valuation on facebook I understand though. Yes, it is extremely high, but the premise is that with that much social data, that much user stickiness, and that level of talent, and you are one of very few players that look like they could seriously give google a run for their money in the advertising business. Read enough, and you start wondering if Verizon / Google / Facebook won't outright own digital advertising industry in enough time. Read some more fanciful stuff, and you start wondering if they have enough data to actually change user behavior and dictate spending streams preemptively.
I could be wrong on all of this though, I'm just a dev, not an industry expert : )
Apple has a P/E ratio of 9.82. (2015 actual). That's what a mature, profitable company looks like. AAPL isn't overvalued. That's the sort of thing Buffet buys. IBM is at 9.90.
That just means low earnings. At zero earnings, P/E goes to infinity. For losses, P/E goes negative. (Negative values aren't usually considered numerically meaningful; it's customary to just indicate a loss.)
It sounds like he's just providing financing for a Gilbert-led group of investors. I don't know enough about private equity or Warren Buffett to know if that's still significantly out of character for him
Where else can you find an outlet to spend over a $billion at once where the underlying assets are more valuable than the security that represents them? Kind of a unique and Buffet-like opportunity.
I'm an ex-Quicken Loans employee, and my best guess is that Dan enjoys Comic Sans so much because of the reaction it gets. The billionaire equivalent of trolling.
To that end, while working on the web team we added a Konami code to the QL website that would change the entire site to Comic Sans. I just checked and sadly that Easter Egg got lost in a redesign.
Also interestingly: Bain Capital is in the running. In the past, Yahoo has used Bain Capital as consultants to reorg, restructure, etc. It would almost seem like a conflict of interest, since they are acutely familiar with the innards of Yahoo.
Edit: as /u/mcmoose75 mentions below, "Bain Capital" and "Bain Consulting" (the one I was thinking of) are two separate entities.
You may be confusing Bain & Company (the consulting firm, a competitor to McKinsey) and Bain Capital. Bain Capital was started by some former Bain consultants, and is obviously similarly named, but is a totally independent organization.
Sue Decker, ex-Yahoo CFO & President sits on the Board of Directors for Birkshire Hathaway. I'm sure she has plenty of insight to the value of the company, and the complexities of its business.
I've been following Buffett since the 1990s and his reputation for shunning tech seems to be based on his wise choice not to play in tech in the late 1990s. This seems to be based on relatively simple valuation techniques as well as asking the important question "Do I understand the business?". Of course he missed some winners as a result of this but overall it helped his results. His two tech moves so far, IBM and Apple, don't violate that approach at all so it makes sense.
When I consider Yahoo's value, I think of email, fantasy football, news, and tumblr. All four seem to be struggling when compared to their alternatives, but each of the products appear to have great potential value. It's hard to determine the quality of Mayer's work as CEO; some decisions were good, some look bad. I'm not confident she is a product person, and this is based on her management of Tumblr and the lack of development in email functionality and UI.
I could be wrong. I do go to Yahoo news everyday and it's not a bad service. It's fun to think about what the world would be today if Yahoo acquired Facebook LOL.
Were I to take on Yahoo, I'd turn it into a content powerhouse, with supporting tools. Yahoo! Finance should have the best articles -- very technical yet explanatory -- all supported by their stock tools. A billion ways to monetize that.
I would use Yahoo! Sports to seriously go after ESPN, which is turning into a turdpile of garbage that's worse than TMZ. I'd literally troll them and get some extremely technical content as well as the fun stuff. Monetize with fantasy, tickets, live stream, schwag, etc.
Rinse and repeat with other news sectors. I'd find about a dozen niches and build out some aggregators with trending stuff - basically DrudgeReport style aggregators for each niche - awesome headlines and all.
Eventually, steer some content towards consumer facing products, and build out a shopping engine for the ones that are consumer-related.
Would this be the next Facebook or Google? No. But it'd be profitable as hell and with the right no-holds-barred content team in each niche, it'd once again become intertwined with American culture. It would "never" die, and it'd be a true fighter for the first amendment.
I don't deal with apps so I'd hire one of you guys to be my #2 for that side of the game.
Buffett and Gilbert you know who to call when you want this company to become relevant again.
It would cost billions of dollars to even attempt to go after ESPN. The primary value ESPN offers today is ownership of broadcast rights. Yahoo can't afford to outbid Disney on those rights and shareholders would never support risking that much capital on such.
What you're describing would never make money. Aggregator sites are among the worst things you could ever attempt if your goal is to make money, which is why so many of them fail and or produce mediocre business outcomes.
Drudge is a unique outcome that is nearly impossible to repeat - which is why nobody has been able to replicate it after all of these years. Its popularity occurred solely due to the Clinton impeachment scandal and two decades of brand / trust building when it comes to editing.
Having a juggernaut of articles and content in business / finance is worth very little. You could combine TheStreet.com, Marketwatch.com, Quartz, Seeking Alpha, Fool.com and Business Insider all under one umbrella and it would be worth less than a billion dollars and barely make any money. It would be a complete waste of time and wouldn't move the needle on Yahoo's business.
> It would cost billions of dollars to even attempt to go after ESPN. The primary value ESPN offers today is ownership of broadcast rights. Yahoo can't afford to outbid Disney on those rights and shareholders would never support risking that much capital on such.
I'm talking about web-based content first. Anyone who follows sports knows that there is a wide open gap ready for someone to take a swing on actual sports coverage. ESPN has turned into a steaming pile of trash. You want more articles on Johnny Manziel, have at it ESPN. We're gonna cover real sports on my Yahoo.
The better broadcasting play is to get into streaming / broadcasting for new sports. Be it eSports, rugby, lacrosse, and any scrap of basketball you can get your hands on -- NFL is going to collapse in the next generation or so (ask any Gen-X parents if their kids are allowed to play football and you'll understand why) -- so just give up on getting rights to the current powerhouse sports for the time being.
> What you're describing would never make money.
Killer content always makes money when you know your demographic and don't sell your soul too much. I wouldn't emphasize the aggregators, those would be portals. The trick is that much of it would be re-written on the actual Yahoo site by real journalists once something gets hot. Then you no longer give the traffic away.
> It would be a complete waste of time and wouldn't move the needle on Yahoo's business.
This is because you don't know how to monetize. Content isn't the end game, it's the easy advertising. Yahoo! Finance is an under-utilized tool. The content on a powerful domain like that would be used to inexpensively gather new users into the profitable toolset - the end game could be to build out a trading platform, for instance.
You would invest time and effort and money in overtaking much larger or smaller, leaner properties that are all experiencing negative growth in an industry that has seen a bottoming out of it's primary revenue source and a race to the bottom in quality?
Isn't Yahoo Fantasy the #1 fantasy property (not including daily fantasy)? Also all of these are ad supported products -- and no amount of premium/freemium add-ons are going to make more money than what these have made historically on advertising. It's barely worth considering anything other than ad supported models.
Ahhh - interesting. If he can convince the top U of M grads to stay in Detroit rather than heading for the costs, he may be able to pull something off.
Are there many success stories of Silicon Valley companies leaving the Valley?
I'm weary of this. As a Detroiter I'm not a fan of Gilbert.
Though the prospect of bringing a large tech co to Detroit is nice, Gilbert and his people are very unpleasant to work with. They pay lip service to the importance of technology but generally don't respect tech people, or know how a real tech company operates. Not to mention their questionable morals (politically manipulating the State of Ohio so they could have a casino monopoly, instant mortgages, reverse mortgages, etc.).
Firstly, the Bizdom incubator was a mess. Very poorly run. Not a single successful business came out of it. No actual founders taught students. Just ex-QL people or trusted friends; the only thing in common was that none of them had ever started or ran a startup. Most of the startups that gained any traction did so by selling to Gilbert's other companies rather than proving that they have a real market - lots of incest going on.
On top of that, some entrepreneurs got straight-up screwed. At a minimum, by highly abusive investment terms (such as Bizdom owning 67% of the company and having the ability to modify operating agreements at will) - and to top it off, multiple founders in their system have had their ideas ripped off by Gilbert's people.
That's on top of their ridiculous real estate ventures. Such as offering startups hip, beautiful office space in Downtown Detroit - in exchange for a percentage of their company (I hear it's over 10%, with very few people biting). The startups that went through their investment funnels were "heavily encouraged" to get space there.
My guess is that if he gets Yahoo, he'll open up an office in Detroit, try to QL-ify it (i.e. make it a sales company that is a fairly close parody of Glengarry Glen Ross), it will flounder for a few years, and either get sold again or just die.
I don't know what is going on here but my bet is it has more to do with rich people doing tricky stuff with money than a vote of confidence in Yahoo, its products or potential to make money
If I was saddled with a dinosaur like Yahoo I would split it up and try and get some cash then rename what was left and I still think you would just be delaying the inevitable. The Yahoo name has about as much value as Netscape or Novell. It pretty much says outdated, failed technology company that has been overtaken by the competition.
Idea which I find interesting, but is probably not on target, is BH leveraging their investments in Yahoo and Apple to have Apple take over Yahoo. The sense of style which Apple cultivates applied to digital content curation, combined with a personal digital assistant tweaked for librarian reference desk responses (Viv-ianne the Librarian).
MySpace completely failed to stay with the times post-acquisition, they kept focusing on catering to big-name bands rather than the huge base of individuals. Over time people grew tired of MySpace being indifferent to them and moved on. Today the same type of crowd has made Snapchat a huge success.
AOL remained fixated on catering to their existing customer base and trying to grow high-margin dial-up revenues. They squandered their capital even harder than Yahoo did, as there's not a single AOL branded anything that's a best-of-breed. Everything about the company is second rate. Consider this: They bought the internet's darling company, Netscape, and could not make a nickel off of it or even keep the brand alive in any useful sense despite investing heavily in a series of increasingly bizarre reboots.
Facebook, by comparison, will not hesitate to incorporate features from other competing products if they think they're going to drive the platform forward and has made a number of strategic purchases like Instagram and Oculus to help cement their relevance.
I'm not even a fan of Facebook, but I admire their tenacity and their incredible ability to survive in an industry littered with the wreckage of previously huge social empires.
I remember to read a lot of times that Warren does not invest in technology, because it's too risk and he only invest in what he understands. So, now it seems he learned.
every time I missclick a New York Times link in my no-JavaScript mobile browser the site manages to redirect me back to the referrer url I was at. it's really uncanny. I click a link on HN, and after a page load, I'm back at hacker news.
except this one link. what should I think of that? why that single link is different than ever other nytime.com links?
Buffett has basically parlayed the prestige of his name into sweetheart deals with provisions that no other company could get (eg. his investment in Goldman Sachs).