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Windfall means ‘moment of reckoning’ for Yahoo CEO

By WTOP Staff

MICHAEL LIEDTKE
AP Technology Writer

SAN FRANCISCO (AP) — Yahoo CEO Marissa Mayer faces a $10 billion decision in a few months.

The pivotal moment will come when the Chinese e-commerce leader Alibaba Group completes its initial public offering of stock — an enormous deal that triggers a provision requiring Yahoo to sell about 40 percent of its stake in the company. The sale is expected to generate a windfall that will intensify pressure on Mayer to revive Yahoo’s revenue growth after years of lethargy.

“This is Marissa’s moment of reckoning,” says Moshe Cohen, a Columbia University business professor who has been tracking Yahoo’s ties with Alibaba.

Mayer acknowledged as much Wednesday during an appearance in New York at a conference hosted by TechCrunch.

“We know this is of critical importance to our investors,” she said. She declined to say much more, citing securities regulations that restrict the public comments of executives involved in pending IPOs.

While the sale of Alibaba stock will be a short-term boon for Yahoo, it will also remove some of the financial scaffolding that has been lifting Yahoo’s stock even as the company’s revenue continues to slip. Most analysts say the Alibaba stake is the main reason that Yahoo’s stock has more than doubled under Mayer because investors latched on to Yahoo shares as a way to get a piece of Alibaba’s IPO.

With much of the Alibaba support going away, “it’s time to rev up revenue growth,” says BGC Financial analyst Colin Gillis. “They will need to move the needle now.”

One of the quickest ways Mayer could boost revenue would be to buy another company, something she will be in a better position to do after the IPO is complete, probably in August or September.

Although Alibaba is unlikely to set an IPO price until this summer, analysts estimate the Chinese company’s market value at $150 billion to $200 billion. At that level, the 208 million shares that Yahoo is required to sell will bring in at least $10 billion. The Sunnyvale, California, company would still own about 315 million Alibaba shares that it could sell at a later date.

With that much money coming in, Mayer could afford to make a big splash by buying a hot startup such as rising social media star Pinterest or the ephemeral messaging service Snapchat. But those startups still aren’t generating much revenue, an issue that would probably rattle investors if Yahoo dared to buy them. What’s more, Yahoo could face competition from even richer bidders such as Google Inc. and Facebook Inc.

A more logical takeover candidate for Yahoo would be AOL Inc., another once-dominant Internet company that was outwitted by hard-charging innovators such as Google and Facebook, which built lucrative advertising networks around online franchises.

Gillis thinks the marriage could make sense for Yahoo because AOL has been more successful in online video — one of Mayer’s top priorities — and has done a better job selling ads to other websites. AOL also has a long-running contract to get its search results from Google, an arrangement that might appeal to Mayer because she has publicly expressed disappointment with the revenue that Yahoo has been getting from a similar search deal with Microsoft Corp. If they were combined, Yahoo and AOL also could reduce expenses and make more money by eliminating overlapping jobs and operations.

A potential purchase of AOL got significantly cheaper Wednesday after the company’s first-quarter earnings missed analysts’ projections. AOL’s stock plunged 21 percent, leaving the company with a market value of about $2.8 billion.

There’s another reason a deal could come together: Mayer and AOL CEO Tim Armstrong have known each other for years, having both played key roles in Google’s success while working at that company. Armstrong specialized in ad sales while Mayer focused more on design and engineering.

While he thinks an AOL acquisition could work for Yahoo, Cohen believes many investors are unnerved by the prospect of Mayer financing a shopping spree with the Alibaba windfall.

Through last year, Yahoo had purchased a total of 28 companies for a combined $1.4 billion since Mayer became CEO. Most of the deals consisted of tiny startups staffed by engineers who Mayer wanted to hire for their expertise in mobile applications. The one exception: a $1.1 billion purchase of blogging service Tumblr.

“She has been making acquisitions that haven’t been producing revenue,” Cohen says. “If she goes for even bigger acquisitions, the stakes will be even higher, and the market’s confidence in her is not that strong right now. The market is worried the value from Alibaba could be destroyed.”

Yahoo’s stock sank $2.42, or 6.6 percent, to close Wednesday at $34.07. The shares stood at $15.65 when Mayer became Yahoo’s CEO in July 2012.

“From a shareholder perspective, the big issue is what is going to happen to all that cash,” says Macquarie analyst Ben Schachter. “People want to know, and she is being relatively coy about it. So there is a lot of uncertainty around Yahoo right now.”

In her appearance at the TechCrunch conference, Mayer indicated that she would handle the Alibaba windfall similar to the way she dealt with Yahoo’s more than $7 billion gain after selling another portion of its stake in the Chinese company in 2012: She set aside some of the money for acquisitions but earmarked about 85 percent of it for buying back its own stock, according to Schachter’s calculations.

“We intend,” Mayer said, “to be good stewards of the capital.”

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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