Yahoo! Inc. (NASDAQ:YHOO) efforts to buy a controlling stake in foreign video streaming giant Dailymotion have come to an end because of the French government. While it could be viewed as a setback, it’s probably a blessing in disguise.
A Collection of Links
Although it’s a very different company today, Yahoo! Inc. (NASDAQ:YHOO) started life as a collection of links that helped to organize the web. It was a portal through which users started their web experience, which gave the company an edge when Internet advertising was in its infancy.
Google Inc (NASDAQ:GOOG), however, quickly overtook Yahoo! Inc. (NASDAQ:YHOO) and relegated the one-time leader to second tier status. As Google Inc (NASDAQ:GOOG) expanded its search and advertising businesses, Yahoo! became less and less relevant. Lacking the scale of Google in search, Yahoo! started toward a model of aggregating and even creating its own content.
While the company still has a material market position, its revenues peaked in 2008 and have been generally heading lower since. It clearly hasn’t been able to sustain its one-time advantages. In an effort to turn things around, Yahoo! Inc. (NASDAQ:YHOO) brought in a Google Inc (NASDAQ:GOOG) alum as CEO.
Mini Me
Obviously, Yahoo! Inc. (NASDAQ:YHOO) is hoping that Marissa Mayer can bring some of the Google Inc (NASDAQ:GOOG) magic to Yahoo! The CEO has money to burn after the sale of half of Yahoo’s stake in Alibaba for around $7 billion. She has been making numerous acquisitions, but mostly of smaller startups. The goal has been twofold, to bring in new ideas and the people behind those ideas.
She is looking to make Yahoo! more entrepreneurial. That’s not a bad thing, but one that could come with some serious risks. For example, if Mayer simply tries to build a Google Inc (NASDAQ:GOOG) clone, she is more likely to fail than succeed. Yahoo! is a different company and needs to find its own path.
While competing directly against Google in video might sound like a good idea, Yahoo! simply hasn’t had much success doing that. Search is a prime example, since Yahoo! basically outsourced that task to Microsoft Corporation (NASDAQ:MSFT) and its Bing search tool after realizing it couldn’t compete.
So, while Yahoo! is trying to right the ship, it is probably best that it doesn’t spend big bucks to enter the video market. The company’s partnership with Dailymotion is probably sufficient for now. Rumors that the company is now eying Hulu, meanwhile, aren’t a positive. That said, once back on its feet, Yahoo! still has the second half of its Alibaba stake that it could sell to fund a future purchase, if it wanted to.
Big Warning
The troubles at J.C. Penney Company, Inc. (NYSE:JCP) are all the evidence that investors need to see how hard it can be to change a company’s direction. Penney brought in a new CEO from the retail arm of Apple Inc. (NASDAQ:AAPL), with the idea that he could bring some Apple magic to J.C. Penney Company, Inc. (NYSE:JCP). That sounds familiar.
The new leader essentially tried to change every aspect of Penney’s model virtually overnight. What clearly amounted to bringing an ax instead of a scalpel into the operating room led to a 25% plunge in sales in 2012. Worse, the CEO alienated onetime supporters. He was fired shortly after 2012 results were released.
Some analysts now suggest J.C. Penney’s best option is to sell itself. Although George Soros has reportedly taken a stake, which caused the shares to jump, most investors should avoid the stock until its business has stabilized. It simply isn’t worth the risk of getting into a botched turnaround effort with no clear resolution.
This isn’t That
In the end, the problem wasn’t that change couldn’t happen, it was that Penney’s wasn’t Apple Inc. (NASDAQ:AAPL). Doing the things that might have worked at Apple didn’t properly account for J.C. Penney’s culture and capabilities, and, perhaps more importantly, its customers.
Yahoo! isn’t Google. Trying to make Yahoo! more nimble is probably a good move on Mayer’s part. However, she needs to focus on what makes Yahoo! special, not what made her former company special. While some might view the failed bid for Dailymotion as a setback, it could turn into a benefit for Yahoo!, by forcing Mayer to focus more on righting the core business.
Keep an eye on Mayer’s slow-moving turnaround. The company has plenty of time and money to get things right. If it does, its shares’ recent advance could be just the start. Momentum investors might want to take a look. That said, a rumored purchase of video-streaming site Hulu would completely alter Yahoo’s makeup, and probably not in a good way.
Those interested in high-flying Google shares might want to examine the company’s margins, which have fallen dramatically over the last year because mobile ads aren’t as profitable as online ads. The addition of Motorola’s patent library, while providing insurance on the Android front, has also been a margin killer. These issues could lead to results that disappoint the market.
The article Video Deal Falls Through, Thank Goodness originally appeared on Fool.com and is written by Reuben Brewer.
