The road ahead for Yahoo! (Who will buy the core business?)

Laughing my way to the bank!

News just came in minutes ago that Yahoo! has declined to move forward with the Alibaba spinoff, and will instead examine a spinoff of its core Internet business, CNBC reported citing anonymous sources.

Such a move could mean several things…

  1. Marissa Mayer has realized that she can’t effectively turn Yahoo! around.
  2. Mayer is prepared to leave Yahoo! If Mayer gets canned due to a sale, she’ll receive a severance package worth nearly $160 million (!!!). However, if Mayer can’t secure a sale and the board decides to fire her anyway (which is very unlikely, given that she handpicked the board), she’ll instead receive a relatively tiny severance package of ~$36 million.
  3. Mayer does not think that she can that can avoid the massive tax on the Alibaba spinoff (analysts have pegged the figure at $12 billion, if Yahoo were to distribute the Alibaba shares to each of its existing shareholders).
  4. Mayer does not believe that, for one reason or another, she can win the fight against Starboard’s Jeff Smith (just a few days ago, Mayer was telling people around her that it’s unlikely she’ll sell Yahoo!’s core business, according to superstar Yahoo! reporter Kara Swisher).

If Yahoo! is exploring a sale of its core business however, there are a couple private equity shops and businesses that have already showed some interest (nothing concrete, but expect offers to start coming in soon):

Silver Lake Partners (P.E.) is not interested in the deal.

KKR & Co. LLP (P.E.) is not interested in the deal.

TPG Capital (P.E.) has sniffed around and made contact with the team at Yahoo!, but nothing concrete has come out of the “soft” discussions (this may change soon!). Kara Swisher believes that TPG is the most serious, “though none are far down any path to buy all (or even part) of Yahoo!

Apollo Global Management (P.E.) like TPG Capital, it has shown some interest and made contact with Yahoo! executives, but nothing concrete yet from the “soft” discussions.

Barry Diller’s InterActive Corp (business) has showed moderate interest, but is unlikely to have enough money (would also be an unwise decision, given that IAC just IPO’ed).

Comcast has sniffed around, but left the table without any intent on pursuing a deal.

Tencent is reportedly also interested, but it would be an incredibly hard deal to seal for a plethora of reasons (including taxes and international trade regulations), given that Tencent is incorporated in China.

Rupert Murdoch is quite evidently interested in a deal (the WSJ has been publishing reports after reports that imply Yahoo! should sell its core business despite weak and often misleading sources — the most egregious example is a report published that Alibaba is not interested in Yahoo!’s core business… when no one said that Alibaba was in the first place; make of that what you will), although how he can or will finance the deal remains to be seen (highly unlikely).

Out of all the PE shops and companies that have sniffed around, Verizon appears to be the most serious candidate, and its executives have met with some of Mayer’s close associates. Verizon’s CEO Lowell McAdam also said, earlier today at Business Insider’s Ignition Conference, that the company would be interested in purchasing parts or the whole of Yahoo!’s core business if it goes up on the auction block.

Some other things to keep in mind as news on Yahoo! continue to pour out in the coming days and weeks…

  1. Most people undervalue Yahoo!’s core business (it’s almost like a cool thing to do now). Yahoo! current market value is $32.9 billion (as of publication). Some analysts believe that once you subtract what Yahoo! owns (a stake in Alibaba worth $32.4 billion and a stake in Yahoo! Japan, a completely independent entity, worth $8.7 billion, ~$1.3 billion cash, $5.5 billion in securities and $1.2 billion in debt), the core business is worth less than zero. This cannot be further from the truth. Yahoo!’s core business, which is comprised of the website properties, apps and digital adstack it owns, must be worth something, right? But how much? If hedge fund Starboard Value’s estimations turn out to be right (and there’s no reason to believe otherwise), then once the taxes are taken in account, the Alibaba shares’ true value to Yahoo! shareholders is closer to $19.6 billion, and the tax-adjusted value of Yahoo! Japan is $5.3 billion. Therefore, Yahoo!’s core business is actually worth north of $2 billion (it is, however, very unlikely that Yahoo! will sell its core business for a mere $2 billion. People in the industry say the figure will most likely be somewhere around $6 billion). 
  2. How can Yahoo! command a ~$6 billion price tag on its core business? Because it’s a sleeping giant. Despite having not grown in years, Yahoo!’s core business was still able to produce $4.3 billion in revenue in the last 12 months (that’s a lot more than what other companies — a lot of which are darlings in the eyes of the media and investors — can say).
  3. The only reason why Yahoo! is valued less than its competitors is because investors are not optimistic about Yahoo!’s future… a sentiment that can be changed with a legitimate restructuring plan initiated post-sale.
  4. ComScore pegs Yahoo!’s global audience at 618 million, thus making it the fourth largest company in terms of reach, just behind Google, Microsoft and Facebook. Despite being criticized just about daily by the media and investors, Yahoo! is still the third biggest destination in the United States, just behind Google and Facebook (something you wouldn’t expect if you only read the news!).
  5. Yahoo! is in no rush. Despite consistently declining revenues, Yahoo! has an EBITA $832 billion (2.6x forward earnings). Comparatively, when Tim Armstrong sold AOL to Verizon earlier this year, Verizon purchased AOL 8.5x its projected 2015 EBITA earnings. This alone should give Yahoo! some negotiating leverage. Despite what some may believe, Yahoo! (given how much cash and other assets it has) can negotiate from a position of strength.
  6. Yahoo!’s core business can be spun out into an entirely different company, one that is independent from the management running the Yahoo! that is a shell for the Alibaba spinoffs. But in any event, I expect Mayer to leave with her severance package intact post-spinoff and sale.
  7. Mayer really cares about her image (who doesn’t?). The fact that she, the glamorized Google executive, had failed in her job to turn the company around will always be a sticking point for her. But! She can still salvage her reputation if she negotiates a more than fair price for Yahoo!’s core business in the event of a sale. The tech world is filled with people who refused to sell their companies when it was worth something, and then regretting it later (BlackBerry being the prime example). If Mayer can shock the world with how much she can sell the perceptually worthless Yahoo! core business, she can save her legacy at the same time. No one’s going to remember about the sale a few years after, when Yahoo! has been dismembered, but everyone will remember Mayer for the success of the sale.

READ NEXT: Can Someone — Anyone — Please Explain To Me Why Marissa Mayer Is Still Employed? (PS. No one will remember this as long as she sells Yahoo!’s core business for a good price!)


Exclusive: Apple Set Its Sights On The DSLR Market With Next-Gen iPhones

iphone exclusive

BuzzFeed News has revealed that Apple will hold a special event the week of September 7th (with Wednesday the 9th being the likeliest date) to unveil its next-generation iPhones, presumably called the iPhone 6S and iPhone 6S Plus.

According to sources briefed on Apple’s plans, the company will dedicate a significant portion of the keynote to addressing what some within are describing as a “quantum-leap” in camera technology for the iPhone 6S/iPhone 6S Plus. With the substantially improved 12-megapixel camera sensors, Apple plans to not only surpass Samsung and LG’s smartphone offerings, but also set its sights on the amateur DSLR market. The camera, according to these sources, is also capable of recording videos in 4K quality.

The Michael Report – along with other outlets – can confirm, after reviewing documentations sent to several carriers worldwide, that customers would be able to preorder the newly released iPhones on September 18th following the keynote. Customers living in the United States, United Kingdom, France, Germany, Australia and Hong Kong (among several other countries) who prefer to purchase the iPhones in-store will be able to do so starting September 25th.

Among other numerous improvements, the iPhone 6S/iPhone 6S Plus is expected to ship with a pressure-sensitive Force Touch display and an entirely new wireless chip, which is said to be significantly faster and much more power-efficient.

Apple is also expected to debut the next-generation Apple TV and iPad at the same event, although BuzzFeed News calls the unveiling of the much-anticipated 12.9-inch iPad Pro “a wildcard”.

[Image render via/TMR]

EXCLUSIVE: Reddit’s Internal Plan To Fix Itself

As Reddit charts its future with a new CEO, co-founder Steve Huffman, the company has been scrambling to decide on what to do with the hateful subreddits that currently exist on the site (such as /r/CoonTown). The Michael Report talked to several employees and people familiar with the matter and here was what they told us…

  • The company has reached a middle ground between what previous CEOs Yishan Wong and Ellen Pao wanted for Reddit (for it to be as free as possible from restrictions; to allow offensive content to exist as a small price to pay for having meaningful discussions and not letting users feel as though they’re censored) and what the board of directors wanted for the company (for Reddit to purge all of its offensive subreddits once and for all, so the site becomes more ad-friendly).
  • Under Steve Huffman’s guidance, Reddit will allow the offensive subreddits to exist, but each of them will be flagged and hidden from those who aren’t looking for them specifically (i.e. logged-out users). TMR has also heard that Reddit plans to exclude these subreddits from search (it was not clear from our source whether this means Reddit’s internal search system, Google search, or both).
  • Subreddits that host offensive content will be flagged with some version of the NSFW tag. In order to view these subreddits, users would have to create a Reddit account and get to them through URLs rather than search.
  • This is done in part to demotivate people from creating more of these hateful subreddits, and to decrease viewership numbers to the more offensive parts of Reddit. If and when traffic to the offensive subreddit decreases, it will be easier for the company to just purge them all once and for all.

Tip us off if you know more!

CHAOS REIGNS: Sources Tell Us What Really Happened At Reddit With The Firing Of Key Employee Victoria Taylor… (Exclusive)

Reddit, the Internet’s bulletin board that serves 7.55 billion pageviews monthly, is in complete chaos after the company’s first Director of Communications, Victoria Taylor, was fired abruptly. Since Taylor’s termination on Thursday night, several default subreddits have gone “dark” (setting themselves to private, and thus blocking the public’s access to the subreddits’ content) in protest and to show solidarity with Taylor.

Taylor, during her time at Reddit, was arguably the company’s most public face, having organized, verified and moderated most of the celebrities’ AMAs (“ask me anything”).

Those who knew Taylor personally said that she was warm and genuine, and had the integrity to never let anyone but the celebrities themselves answer the questions posed by Reddit’s users. Almost universally beloved, Taylor’s firing puzzled many. Taylor’s presence was also instrumental to getting celebrities onboard with the idea of doing AMAs, helping them understand, most crucially, the format which may seem hectic and disorienting for first-time users.

But now, all of a sudden, she’s gone.

No explanation, nothing. Just fired.


After speaking to several Reddit employees (all of whom declined to be named due to the high tensions surrounding this issue) and people familiar with the site’s operations, here’s what The Michael Report exclusively found out… and it’s not pretty at all.

Reddit wanted to commercialize AMA, but Taylor wasn’t comfortable with selling users out

When Reddit received a $50 million investment from prominent venture capitalists such as Marc Andreessen, Peter Thiel and Ron Conway in October last year, the site, which operated in the red, promised to be profitable in the near future. One of the ways the executive team overseeing Reddit’s operations thought they could do that was if they pushed harder to commercialized the AMA subreddit, which often featured prominent celebrities such as President Obama and a guy with two fully functioning penises. Taylor, however, was not comfortable with how much Reddit wanted to commercialize the AMAs.

Multiple sources within Reddit told us that the management team including Reddit’s founder Alexis Ohanian wanted Taylor “extract soundbites from celebs that they can sell on shirts and cups and whatever” during the AMAs, which would require Taylor to either modify the users’ questions or selectively pick questions in hopes of getting the soundbites instead of doing what users expected her to do, which is to ask the most upvoted questions. Other sources said that Reddit’s management team, most of who rarely reads the AMAs themselves, often pushed for Taylor to modify the questions posed, angling it such that Reddit would be able to obtain more advertisers.

In one particularly egregious example, a current Reddit employee told us that there were high-level discussions for convince Taylor to receive questions from a celebrity’s agent (the source declined to reveal which) and have the celebrity answer those questions with prepared statements that is intended to generate goodwill among the site’s users.

One of the ideas floated around by higher-ups at Reddit was also to do video AMAs (instead of the current text format), which would command extremely high ad rates from advertisers due to the attention given to certain celebrities. The idea, we were told, was to “pre-sell ad spots to advertisers beforehand”, including but not limited to preroll video ads and having the celebrities plug the sponsored products during the interview. As far as we know, Taylor has resisted these pressures and remained loyal to the site’s users.

“[Victoria] pissed the management team enough that they thought she should be replaced by someone… more obedient,” a source within Reddit told us.

There’s a huge disconnect between Reddit’s management team and users

Despite having a community team whose job is to appease Reddit’s moderators (volunteers who manage the subreddits), it seems like the team has not been very effective in doing their jobs. The general sentiment among the site’s moderators is that the administrators (paid Reddit employees) often brushed off their question and concerns whenever they had one or needed the admins’ intervention. Taylor, on the other hand, often tried her best to assist the moderators in resolving their issues. “What really lit the fuse was that literally none of the moderators knew Reddit was gonna fire Victoria, and Reddit didn’t bother telling them. Reddit’s execs, who don’t even use Reddit, really don’t know what’s going on and the shit that just hit the fan,” a person close to Reddit’s operations told us.

Indeed, Reddit’s moderators seem to have no idea that Taylor was going to be terminated (neither did Taylor: in one thread, Taylor said she was “dazed” by the decision). One of the r/AMA mods, who goes by the username karmanaut, wrote in a post explaining why the subreddit went dark:

Today, we learned that Victoria was unexpectedly let go from her position with Reddt. We all had the rug ripped out from under us and feel betrayed.

Before doing that, the admins really should have at least talked to us (and all the other subs that host AMAs, like/r/Books, /r/Science, /r/Music, etc.) (Edit: not to suggest that we expect to know about Reddit’s inner workings. Just that there should have been a transition in place or something worked out to ensure that Victoria’s duties would be adequately handled, which they are not) We had a number of AMAs scheduled for today that Victoria was supposed to help with, and they are all left absolutely high and dry (hence taking IAMA private to figure out the situation)…

The admins didn’t realize how much we rely on Victoria. Part of it is proof, of course: we know it’s legitimate when she’s sitting right there next to the person and can make them provide proof. We’ve had situations where agents or others have tried to do an AMA as their client, and Victoria shut that shit down immediately. We can’t do that anymore.

Part of it is also that Victoria is an essential lifeline of communication.

Part of it is also organization. The vast majority of scheduling requests go through her and she ensures that we have all of the standard information that we need ahead of time (date, time, proof, description, etc.) and makes it easier for the teams that set up AMAs on both ends. She ensures that things will go well and that the person understands what /r/IAMA is and what is expected of them. Without her filling this role, we will be utterly overwhelmed. We might need to scrap the calendar altogether, or somehow limit AMAs from those that would need help with the process.

We have been really blindsided by all of this. As a result, we will need to go through our processes and see what can be done without her.

Sources we talked to said that Reddit’s commercialization efforts are inherently at odds with the site’s purpose… “look at what happened to Digg or StumbleUpon and look at where this is headed,” an ex-employee told us, referring to two once-dominating social networks which have since fallen by the wayside. One employee whose job used to be interacting with Reddit’s moderators and users viewed the entire drama with disgust, comparing the monetization efforts to turning Reddit into a graveyard.” “Reddit, without its users, is an ugly ass site,” he continued. “But the users make it great. The only thing Reddit can ever monetize is the incredible community… but piss them off, and they leave. They’re literally destroying the product they’re monetizing. Maybe one day they’ll be smart enough to realize that.”

Reddit’s founder Alexis Ohanian’s nonchalant response to the drama (“The popcorn tastes good.”) has further agitated users (update: he has since backtracked).

When asked for comment regarding Taylor’s termination, a spokeswoman for Reddit told The Michael Report “we don’t comment on individual employee matters.” It is interesting to note, however, that the response came not from a Reddit employee but from an executive at Abernathy MacGregor, a crisis management public relations firm.

A current petition to remove Ellen Pao as Reddit’s interim CEO has reached 16,200+ signatures.

EDITOR’S NOTE & UPDATE: In light of new information provided by multiple former and current employees, as well as people currently familiar with the situation, TMR has rewritten significant portions of the original post to reflect our better understanding of the rapidly evolving situation.

EXCLUSIVE: Uncertainty Clouds Over Twitter After CEO Abruptly Resigned; Many Skeptical Of iCEO Dorsey

It’s been just a little under a day since Twitter CEO Dick Costolo unexpectedly announced his resignation, putting in place co-founder Jack Dorsey as the “interim CEO”. Dorsey will serve as the interim CEO while the company’s board searches for a permanent CEO. The official narrative, provided by Twitter and prominent investors such as Fred Wilson, is that Costolo has served his role in Twitter: he took a company from $0 in revenues to millions, and took it public. He has accomplished everything he wanted to in the company. His time there is done.

But that sounded a little too perfect for us. Twitter is, after all, a company known for aggressively hiding the truth from the press — or even its own employees. As New York Times columnist Nick Bilton wrote in his book Hatching Twitter, Twitter aggressively stage-manages every executive exit, painting every departure as mutually-agreed upon and for the best of the company. With that in mind, we asked around. And we found a few people who were willing to talk to us, as long as we do not attribute the information to them.

Our two word summary of everything we heard is going on at Twitter: it’s messy.

Costolo’s unexpected departure

Short of Twitter’s most prominent investors and the company’s C-suite, almost no one in the company knew — or got any hint — that Costolo was going to resign. Some felt betrayed that the everyone else, including the media, learned the news at the same time they did. But more importantly, they were sad. Costolo, who used to be a comedian, was universally loved within Twitter. He was incredibly funny, warm and personable.

When Costolo announced that he was resigning, those in the room gave him a standing ovation, while others began tweeting with the hashtag #ThankYouDickC.

“We all knew how much he tried for the company,” said one senior executive we talked to. But at the end of the day, Costolo did not satisfy Wall Street’s expectations, after numerous misses on revenue and user growth. As Twitter’s investors became more and more vocal about the dismal state of the company, many began calling for Costolo’s head to roll.

“The Dick I know will only resign when he knows that there’s really nothing more he can do for this place he loved so much,” the senior executive continued.

Dorsey, isn’t as well-liked within Twitter… perhaps for a good reason.

The fake CEO search

In 1997, when Steve Jobs returned to Apple, he was given the “interim CEO” title by the board. Years later, he dropped the “i” in front of the “iCEO” title. Several employees believe that this is going to be the case with Dorsey. Sure, he may be the “interim” CEO now — but not for long, they told us.

So why pretend to have a CEO search when the board is eventually going to make Dorsey the permanent CEO?

“It’s all part of an illusion, at least that’s what I think, to make sure that no one suspects a coup occurred,” one employee who has worked at Twitter for a number of years told us. “They already made up their mind… and they know that no one wants the job more than Jack.”

There’s also another reason why it’s important to have a broad CEO search: in case Dorsey screws up.

The responsibility of appointing a competent CEO ultimately falls onto the board. If Dorsey screws up as the CEO, investors are going to wonder why didn’t the board hire someone more competent from another company, or at the very least, not from within Twitter. If and when that happens, the board then say: look, we did try to look for other candidates, but we believe Dorsey is the best guy to lead Twitter. It’s not on us that he screwed up.

Is a distracted Dorsey any better than a focused Costolo?

The more we talked to former and current Twitter employees to get their take on Costolo’s resignation and Dorsey’s iCEO status, the more we heard this: if Dorsey can’t make any money at Square, what makes you think he’s going to make any as Twitter’s CEO?

One of the most important reasons why major investors wanted Costolo canned was because Twitter’s revenues weren’t increasing at a pace that satisfied Wall Street. Twitter’s stocks took beatings regularly. It was getting ugly. But does it mean Dorsey can fix that problem?


As The Verge noted, “the value of [Square] compared to its revenue has been steadily declining. That’s likely because it has become clear that Square’s current business model can’t generate a profit, no matter how large it scales.”

Even worse still, insiders pointed out a critical flaw of Dorsey’s: he seems to be always distracted with other projects.

When Dorsey was Twitter’s CEO, a position he was fired from in late 2008, he often prioritized personal projects over the state of the company. As Bilton wrote in Hatching Twitter, Dorsey would often dash from the office at 6 p.m. sharp, to go to his favorite extracurriculars: sometimes a drawing class, sometimes yoga, other times a dress-making course.

Now, Dorsey is the CEO of Square, in addition to being Twitter’s interim CEO. Square is a company that has taken on close to $600 million in funding from investors who are eagerly waiting for their return on investment. “It makes you wonder… is Jack going to prioritize his baby [Square], where he found a second chance after being booted out [of Twitter] humiliatingly, or is he going to prioritize the company that, well, betrayed him?” said a former Twitter employee. “The way I see it, Twitter is doomed under Jack.”

The chorus is getting louder: take Twitter private!

A well-placed source within Twitter confided in us that, in his opinion, the best thing Dorsey can do is to take Twitter private while trying to fix the company’s business model. He believes that Twitter’s business model — wanting to be like Facebook, but being unable to — is in need of serious fixing.

If you look at the numbers, it’s a belief not entirely unfounded.

Twitter’s monthly average users (MAUs) is growing, relative to the social media world, very slowly. New users are not signing up. Normal people — those who aren’t celebrities or journalists — aren’t using it. If Twitter becomes private again, the reasoning goes, Twitter can figure out other measures of success and monetize on those new measures beyond just raw user numbers. “Twitter should stop playing a game they know they’re going to fail in,” our source said.

In terms of raw user numbers, Twitter is way behind Facebook. Shareholders want Twitter to be Facebook. It can’t. It is something different, but no one wants to embrace Twitter’s difference. So the next logical thing to do is to take Twitter private, so it can figure out its future strategically without taking constant beatings from investors over every single misstep. Twitter’s management needs room to breathe. It’s suffocating.

As we said before, it’s messy.

Snapchat Is Scrambling To Salvage Its Key Money-Making Product, Discover

snapchat discover failing

Snapchat Discover, the section of the social networking app where brands (such as the Daily Mail and Cosmopolitan) can post short stories and videos, is not performing as well as the company thought it would, we’ve learned exclusively from sources close to the matter.

Earlier this week, The Information‘s Tom Dotan reported that traffic to Discover has been steadily declining, ever since the service launched four months ago.

While viewership to Discover channels was significant in the first few days after the portal’s Jan. 27 launch, it has dropped an average of 30 percent to 50 percent since then, according to two people who’ve seen the traffic data. One media firm with a channel on Discover saw its unique views drop from one million to around 700,000 and is trending downward, according to a person close to the media company.

The repercussions of this decline in traffic could be huge for Snapchat. Snapchat, which is currently valued at $15 billion, has been plagued with the age-old problem facing social media networks since day one: how is it going to monetize and bring in revenue, without being annoying and antagonizing its current user base?

Discover was Snapchat’s answer to that question. With Discover, Snapchat set the price at $100 CPM (cost per 1000 ads shown), which was twice as much as most video ad products can command online, and way more than what publishers can command for banner ads.

For a while, every thing seemed great for Snapchat.

Discover was even hailed as “the biggest thing in news since Twitter.”

But soon enough, the buzz wore off.

Upon seeing a steady decline in views to Discover, Snapchat began an internal investigation into what was going on, specifically focusing on the users’ behavior within the app. The investigation found that most people never went back to the Discover section more than twice (ever since the service launched), and the times they did, they left within a few seconds, often without interacting with the content in the section.

The conclusion Snapchat arrived to was troubling: Discover was facing a user-retention problem, and more importantly, people were not satisfied with the product – most of its traffic had come from accidental swipes and touches.

While the content lineup can be tweaked once the current contract with Snapchat’s media partners expire this June, Snapchat is also looking to revamp the layout of Discover, we’re told by sources with knowledge of the company’s roadmap.

Snapchat is currently looking at a few apps with proven track records of retaining users to inspire its redesign of Discover – one of them being BuzzFeed’s app. We’re also told that the company may switch to a vertical, scrolling layout for its next iteration of Discover, thus ditching its current “button” based layout where users have to specifically pick a media company’s button to view its content.

Snapchat’s competitive product offering to Square’s Cash, Snapcash, is also struggling to gain traction amongst the app’s mostly millennial demographic. With Snapcash, users can securely send money to one another just by typing a $ into the text field and pressing the green button. While the product launched to huge media fanfare, it has since languished according to data viewed by a source.

At a $15 billion valuation, Snapchat is under tremendous pressure to prove itself to investors that it can generate revenue. If it succeeds, the company has the potential to be the next Facebook, at half the amount of time it took Facebook. If it fails, it may very well become the next Twitter.