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Labor of Sisyphus

29 September 2015 By Robert Cyran

The troubles with Yahoo’s spinoff of Alibaba could last longer than Marissa Mayer. The internet firm’s boss says the company still plans to rid itself of a $22 billion stake in the Chinese e-commerce company. Whether the deal will be tax-free, though, is an issue that authorities could take years to resolve. With Yahoo’s business stagnant and competition rising, the chief executive may be gone before the wrangling ends.

If everything goes as planned, the $28 billion company could save more than $6 billion in payments to Uncle Sam. Earlier this month, however, the Internal Revenue Service declined to say it would approve the transaction, stating that the income consequences of spinoffs were under review.

Yahoo might still realize the tax benefits if it closes the transaction before year’s end, because the IRS said it will not apply any new restrictions retroactively. But there’s no guarantee the Feds won’t challenge the deal in any event.

The commotion draws even more attention to Mayer’s failure to rejuvenate Yahoo since she took the helm three years ago. Revenue from the company’s mobile, video and social-networking businesses did grow 60 percent last quarter from a year earlier, and it now accounts for about a third of all sales.

Unfortunately, those businesses pay handsomely to acquire internet traffic. Strip out these costs, and Yahoo’s revenue was flat. Meanwhile, income next year is projected to be about half of what it was in 2012.

Turning things around won’t get any easier. Advertising is a cyclical business, and the U.S. economic recovery is getting long in the tooth. The end of Yahoo’s search agreement with Yahoo Japan in 2017 may vaporize $150 million of annual EBITDA. The rise of advertisement blockers will also hit the company’s rapidly growing mobile business. And Facebook is sucking up a greater chunk of internet advertising dollars, thanks to its intimate knowledge of its users.

No wonder enthusiasm for Mayer seems to be fading. Her appearance this week at an interactive advertising conference in New York attracted far fewer fans than a year ago.

Yahoo has had six chief executives over the past decade. None has managed to lead the company to success. It may be time to admit that the task is too much for any mere mortal.


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