Yahoo has just released the following letter to shareholders outlining its reasoning for rejecting Microsoft’s offer to buy the company. In it, CEO and co-founder Jerry Yang emphasizes Yahoo’s strengths as both an online destination and an advertising network, and argues that Yahoo is better off going it alone than combining with Microsoft. He states: “The global online advertising market is projected to grow from $45 billion in 2007 to $75 billion in 2010. And we are moving quickly to take advantage of what we see as a unique window of time in the growth - and evolution - of this market to build market share and to create value for stockholders.”
He says that even though Yahoo is the No. 1 Web destination, his goal is to increase visits by 15 percent annually. Re-emphasizing his strategy of being the key starting point on the Web, he adds, “we are particularly excited about our growth prospects in mobile, the biggest emerging starting point in the world.” (We could have told you that). All in all, the letter is pretty much a formality without any major new arguments, but it does put Yahoo’s best face forward to its shareholders. We’re No. 1, Yang is saying, and we don’t need Microsoft. What he doesn’t explain is how Yahoo got into this pickle in the first place.
Here is the full text of the letter:
Dear Stockholders,
On February 1, 2008, Microsoft made an unsolicited proposal to acquire your company. As much has been reported in the press recently, I wanted to reach out to you personally to let you know why your Board of Directors, after a careful review by Yahoo!’s management along with our financial and legal advisors, believes that Microsoft’s proposal substantially undervalues Yahoo! and is not in the best interests of our stockholders.
Most importantly, I want you to know that your Board is continuously evaluating all of Yahoo!’s strategic options in the context of the rapidly evolving industry environment, and we remain committed to pursuing initiatives that maximize value for all our stockholders.
We have a unique combination of strengths
– Yahoo! is one of the most recognizable and admired brands in the world. We have over 500 million users (nearly 1 out of every 2 internet users worldwide). In the U.S., we are # 1 in many of the most used online services including personalized home pages, mail, news, music, shopping and travel. Because we have leadership positions in so many indispensable online services, users spend more time on Yahoo! sites than anywhere else online.
– Yahoo! is an attractive partner for marketers. Yahoo! is #1 in online display advertising, which represents 90% of the advertising inventory on the web, and we are also a leader in search marketing and a pioneer in the growing fields of mobile advertising and online video advertising. Through Yahoo!, advertisers can now connect with consumers on our owned sites as well as those of our growing network of partners including eBay, Comcast, AT&T, a consortium of over 600 newspapers, Forbes.com, Cars.com, WebMD and more.
– Yahoo! has the financial flexibility to execute our plans, thanks to our healthy cash balance, which exceeded $2 billion as of December 31, 2007, and our substantial operating cash flow, which we expect to grow double digits in 2009.
– Yahoo! has made important investments in our core computing infrastructure enabling us to dramatically increase the speed of our search engine updates even while handling vast and growing quantities of data.
– In addition, we have the added value of our substantial, unconsolidated investments in Japan and China. We have substantial positions in Yahoo! Japan, the leader in its market, and Alibaba, which is strongly positioned in China, a market with enormous growth potential.
These assets–our brand and its audience, our relationships with marketers, our financial strength, our technology, and our strategic investments–are the core of our value and our leadership position in the industry.
We have a huge market opportunity - and are uniquely positioned to capitalize on it
The global online advertising market is projected to grow from $45 billion in 2007 to $75 billion in 2010. And we are moving quickly to take advantage of what we see as a unique window of time in the growth - and evolution - of this market to build market share and to create value for stockholders.
We are executing our strategy - and making headway
We have taken significant but disciplined steps to refocus our business on our objectives to become the starting point for the most consumers and the must buy for the most advertisers and enhance Yahoo!’s long-term performance.
Starting Point Objective: Our goal is to grow visits to key Yahoo! starting points and properties, where users enter the Internet, by 15% per year over the next several years. We are the most visited site in the U.S., and we continue to grow - we experienced double-digit growth in U.S. users in 2007 on our Yahoo.com home page.
In addition to traditional starting points on the PC - including our home pages, mail, My Yahoo! and search, we are particularly excited about our growth prospects in mobile, the biggest emerging starting point in the world. Globally, there are twice as many users of mobile devices as users of personal computers, and mobile advertising is projected to grow substantially in the coming years. We have an important competitive edge as the number one mobile destination in the U.S., and we are building a superior mobile experience for Yahoo! users globally so we can further capitalize on this opportunity.
Must Buy Objective: We are working to make online advertising easier and more effective for marketers, opening up new ways for them to connect with consumers. We’ve successfully completed the global roll-out of our search marketing system, Panama, which improved the search experience for our users, boosted returns for our advertisers, and increased revenue for Yahoo!. Last year, we bought Right Media, an exchange that enables buyers and sellers of online advertising to come together. Another 2007 acquisition, Blue Lithium, brings us best-in-class performance marketing capabilities, complementing Yahoo!’s existing offerings for advertisers. We also integrated our search advertising and display advertising sales forces, creating a one-stop shop for all of advertisers’ online marketing needs. All of these - Panama, Right Media, Blue Lithium, and our combined sales efforts - complement and enhance Yahoo!’s existing capabilities and will make it easier for advertisers and online publishers to buy and sell advertising online.
We are also creating a unique and valuable network of premium websites to serve our advertisers. We are making it easier for our advertisers to provide interesting and relevant offers to our users by combining advertising space on Yahoo!’s owned sites with that from a growing group of premium partners including eBay, Comcast, AT&T, a consortium of over 600 newspapers and many others.
As we reach more users both on our own websites and on the sites of our premium partners, and better monetize the ad space on Yahoo!’s owned and operated sites, we are striving to increase the percentage of total online advertising demand we touch from an estimated 15% in 2007 to 20% over the next several years.
These key strategies will be enhanced by our adoption of new, more open technology platforms that will encourage the development of new applications and the involvement of third-party developers - and help enrich the user experience.
We have accomplished a great deal in a very short time - and we are focused on building this momentum
Today, Yahoo! is a faster-moving, better-organized, more nimble company than it was just a few months ago. We have redeployed our resources to drive Yahoo!’s key strategic priorities - taking important steps to streamline our organization and close down or scale back businesses that don’t support these critical growth initiatives. The fact is that we are well on our way to transforming the experiences of Yahoo!’s users, advertisers, publishers and developers - an important shift that is at the heart of our plan to create stockholder value.
I want you to know that the Yahoo! Board of Directors and management team remain committed to pursuing initiatives that maximize value for all our Yahoo! stockholders. This is a great company and we are moving quickly to make it even better.
Jerry Yang
“Microsoft made an unsolicited proposal to acquire your company.”
Everything Microsoft does is unsolicited. You have to crush their foot to get them out of the door. I agree with Yahoo on this one. And look at what happened to Novell. They were instantly diminished after the deal.
Yahoo! does have great assets, particularly the audience and traffic. Market potential, though, is everywhere.
Did Shelly Schaffer wrote this?
Time for Y! stockholders to sell it while they can -for what they can.
Yang has to be one of the worst CEO’s in tech history.
Ugh. What a ridiculous letter. It’s written for Microsoft and not the shareholders. If it was written for the shareholders, they should have more of a slant that screams, “You should just hang tight, because all we’re doing means that our stock will be WAY higher than Microsoft could ever offer.”
The letter doesn’t address the fact that most YHOO investors are like tired, overworked, hungry sleddogs just looking for a scrap.
This letter is just a Yang CYA letter. I hope M$ gets really aggressive and makes a tender offer. Prox fight takes forever.
Dear Jerry,
Your leadership is dismal. Your company is in the toilet. Accept the offer. We would like to get some value of this worthless Yahoo stock.
The Shareholders
Honestly, where were the letters from Yang to the shareholders as Yahoo’s stock and company performance continued to plummet since he took over? Am I the only one that thinks this is a disgrace how active Yahoo is in communicating at this point in time, yet how uncommunicative they’ve been for the past several years as they’ve let their few advantages wither away.
Jerry, we don’t believe you can do anything to help this company out. Why, if you could have, why didn’t you already? This is like a politician who has been elected official for years asking for a reelection when they didn’t accomplish anything in their time in office.
SELL YAHOO. SELL IT NOW. TAKE WHATEVER MONEY YOU CAN GET.
Selling to Microsoft for 40-some billion dollars is better than going bankrupt in 5 more years.
Dear Shareholders… I’m already bent over and lubed up - just waiting for a bigger “D”!
Good for Yahoo! I think the best is yet to come from it. But … they really need to restructure and get innovation going again. Stop buying. Start building.
@8
Ok now you’re being ridiculous and sensationalist.
Let’s keep it sane folks. They are throwing off big profits still and do have a lot of $ in the bank. They’re not going Banko in 5 years.
Fairly speaking, Jerry has only been CEO for about eight months, those people want to see dramatic improvement in financial terms within such a short time is just acting STUPID.
@8: Going bankrupt? Y! is an insanely profitable company. Learn how to read a financial chart, numbnuts.
I’ve been a huge fan of Yahoo since the beginning. But is anyone sick of hearing Yang say that Yahoo is to become ” the starting point for the most consumers and the must buy for the most advertisers?” It’s time for results, Jerry!
Look at the stock. Even after the decline it stayed up. Why? because everyone knows yahoo is undervalued and is the largest social network in the world. Once the key initiatives come through then there will be no reason to go to facebooks of the world.
500million users strong
BUY NOW…..inevitable to go up
Folks, lots of things can change in 5 years. Look at how far Google has come in 5 years. If Yahoo maintains its current level of idiocy mixed with poorly conceived spending initiatives, I can easily envision bankruptcy in 5 years for them.
Who is to say any advertisers will even want to advertise there in 5 years. Their audience may very well be gone.
@12 Zeke: It’s not that unrealistic to hope that, within 8 months, there would be some visible change in policy which led investors to say positive things about what’s going on at Yahoo!.
All I’ve seen coming out of there is same old (failing) ideas. This is why people are leaving, and the stock price has plummeted.
That said, the way the letter is clearly addressed to Microsoft makes it look like “More cash please”.
Yahooligan - it is up, because everyone is sure that MS will pursue
jerry reminds me of George Bush with the war in Irak …
@Blowski, of course these are same old ideas (I would rather say goals), the key is how to execute them. If yang can lead yahoo to successfully execute these strategies, I would say yahoo will come back.
They will give in eventually and accept Microsoft’s offer.
I really know in detail only about the online ad business of Yahoo.
Their effort has been half hearted (no intl focus, targeting so and so, lack of incentives to pull advertisers etc) in that market even though Google keeps increasing shareholder value with their innovations.
Microsoft has been worse, though.
However, MS is paying a hefty premium for the Yahoo stock, so most shareholders will vote to sell, I’m sure.
If Yahoo is really going to continue, and this isn’t a message to MS, I’m proud of them. If I were a stockholder I may have a completely different outlook, but don’t insult Jerry for not wanting to give up.
That would be like the most visited store in a mall selling out to a construction company.
Microsoft blows at developing just about anything. The only reason Windows is the most used operating system is because they offer “support” and made deals with major computer manufacturers. Microsoft just wants to own the most used operating system in the world, and the one of the (if not THE) most visited website. I don’t care what Y! plans on doing, as long as it doesn’t kill one of the (what I like to call) “fathers” of the internet.
Off topic:
Whenever I have a problem in linux, I google for a solution and I find it relatively quick. However with Microsoft’s “support”, you can be waiting on hold for several hours, or days to solve an issue that wouldn’t exist if they actually developed decent software.
PS. I am interested in learning more about investing/buying stock. Can anyone provide me with links that I can learn more about this subject?
@24
if you can use google to find a problem to your linux issue with relative ease, i’m sure you can manage to use it to find information on investing, right?
@25
thanks msft employee we all know how much u guys love ur company
Hi,
Is Valleywag better or techcrunch? I think VW..since it has all the racy news..TC is for only 60 year old ppl
Jerry
Microsoft is profitable not only in Office and Windows but in XBOX also now.
That said they know how to run business.
Yahoo is losing out to google and the time it takes to restructure everything will be probably too late to gain any market share.
They think they have the time but they really don’t
in absolute terms google has the largest momentum.
Yahoo folded on their 360 which means that don’t have the stuff to put a social platform together. their email is very good i use it but it has some flaws like the search feature and some other things… they need to become a really new kind of company. not just restructuring.
Yahoo should have agreed to the microsoft offer.
There has to be a viable alternative to the google empire. They have started to become a dictator.
ani
Their publisher network has been decimated by Google and even Quigo. Yahoo is a joke these days and should really sell. I agree that the marketplace needs a counterbalance to Google but Yahoo isn’t qualified to be that company.
Zeke: and execution is the hard part. You only need to look through these comments to see how easy it is to come up with ideas. But how many of these mini-CEOs are either able or can be bothered to convert those ideas into working, profitable businesses?
Microsoft has made the XBOX 360 profitable. That was a feat - even with its failure rate. Regardless of what you think about Microsoft’s business practices, they know how to turn a profit.
They’ll probably buy Yahoo!, turn it into some kind of product that we (the readers of technology websites) won’t like (do we use Y! right now anyway), and figure out a way to turn a nice profit.
Folks, lots of things can change in 5 years. Look at how far Facebook has come in 4 years. If Google maintains its current level of idiocy mixed with poorly conceived spending initiatives, I can easily envision bankruptcy in 5 years for them.
Who is to say any advertisers will even want to advertise there in 5 years. Their audience may very well be gone.
Yahoo is great company. I realy admired to see their growth in the internet. Only problem is Google has grown very fast then Yahoo is considered as very slow. Even compare to MS Yahoo has good record on online sales and good startegic. Still Yahoo is the leader in Asia for Mobile browsing sites. I am Google Fan, But I respect Yahoo being innovative company. They are Jolted, will bounce back soon.
All you alleged “shareholders” that are pushing for the sale… Why not sell right now if you hate Yahoo so much? The stock price has already realized the value of Microsoft’s offer. Vote with your shares - seriously.
This letter is a statement of what Yahoo is and is trying to become. If you don’t believe - again - vote with your shares. If you don’t have shares, just tell the people you know to do so, and stop vommiting all over these boards.
I for one am interested in what they are trying to do, and want to see what comes next. I agree with some other comments that it’s going to take a really fundamental change in how they do business to pull it off, but this is just the sort of pressure that can force a fundamental change.
This letter is just to pacify Microsoft..
Sure, we will sell yahoo to them.( we just need a little more).
And with the money, the best guys from yahoo , we will start a new search engine.
Google is becoming too heavy and they will loose the wind.
Steve Balmer will be to busy with Windows 2011
In 3 years Yahoo2 ( we don t have a name yet) will be the 3rd seach engine on the planet.
and in 10 years we will make an unsollicited offer to Microsoft
One of their latest scam is even though you have transferred your domain else where, they still take your money for renewal from the card on file. I got scammed by them, er yahooed. It does not even make me laugh when they think they are worth more, anyway!