As expected Yahoo!’s (NASDAQ: YHOO) new CEO, Marissa Mayer, has been shaking things up at the company since her appointment. It seems that she intends to bring a lot of things from her tenure at Google to Yahoo! in an effort to get employees excited about working at the company. For example, the firm has started to offer free food and plans to give out free iPhones to improve employee morale. Another thing that she does is review every candidate hired before they are extended a job offer, something rare amongst CEOs. We think that these steps will help the company attract more talent and generate an environment which fosters innovation.
With these perks though, Mayer expects employees to work harder and faster to tackle the task at hand. She plans to keep the lights at Yahoo! offices on for longer, and expects faster execution for new product ideas. The motto “Launch and iterate,” which fosters innovation in the tech industry, seems to finally be taking hold at Yahoo!. We expect these changes to drastically change Yahoo!’s culture, and think that with Mayer at the helm, the company can be expected to release a slew of innovative products.
Although Yahoo! is primarily a content company, we think that under Mayer’s leadership, they will switch to more of a product focus. They are likely to release them for free and will make money primarily on advertisements. If Yahoo! is successful at creating a set of innovative products while under Mayer, it would not only increase engagement amongst its current user base, but can drive an increase in the total number of users on Yahoo!. These increases can be expected to provide upside to Yahoo!’s value. For example, if Yahoo! page views per internet user increases to 200 per month by 2019, up from our forecast of 150, we could see approximately upside of 5% to our price estimate. [please note that this upside would be higher if Yahoo! divests its Alibaba stake and returns the cash to shareholders]
Overall, we think that Marissa Mayer’s efforts to change the culture at Yahoo! can provide long term benefit to the company. As a CEO she, by herself, can only do so much. To ensure long term innovation, and relevance, the company must foster a culture of innovation, something that Mayer seems to be striving for.
Yahoo! competes with firms like Google (NASDAQ: GOOG) and AOL (NYSE: AOL) to attract eyes to its site. We currently have a $19 price estimate for Yahoo!, which is approximately 20% above the current market price.