Marissa Mayer has dramatically changed the story line at Yahoo during her nearly two years as CEO of the Internet portal. But her biggest test still looms.
Under Mayer, the stock has more than doubled, employees no longer bolt for the exits and Yahoo is working to transform itself into a mobile-first company to keep up with the changes in how people use technology to access news and information.
But even as Mayer moves Yahoo away from under the cloud of worry which dogged it for so long, she's under growing pressure to prove the company's turnaround is for real and not simply the result of a brilliant investment decision made almost a decade ago.
On Tuesday, the Chinese e-commerce giant Alibaba filed for an initial public offering with the US Securities and Exchange Commission. The amount they seek to raise is still unclear, but media reports estimate they could raise $15 billion to $20 billion. While Alibaba's IPO is monumental in itself, the moment will be a seminal one for Yahoo as well.
The companies are intimately tied. In 2005, Yahoo co-founder Jerry Yang led the company through an investment in the little-known Alibaba, ponying up $1 billion for a 40 percent stake in the company. Today, Alibaba is valued anywhere from $150-$250 billion. Yahoo currently owns a 22.6 percent stake in the company. After Alibaba's IPO, Yahoo could end up with $12 billion in cash on its balance sheet, according to Carlos Kirjner, an analyst at Sanford C. Bernstein & Co.
"We understand that this is an issue of critical importance for the shareholders," Mayer said on an earnings conference call last month, when asked about the Alibaba cash. "We intend to be good stewards of our capital and we have been to date."
The ties to Alibaba also offer an unwelcome reminder of the problems remaining in Yahoo's core business. Yahoo's total market capitalization is about $39 billion. Subtract from that its stakes in both Alibaba and Yahoo Japan -- another Asian asset that's been a boon to Yahoo's finances -- and investors seem to be saying that Yahoo's core business is worth less than nothing. Last month after Yahoo announced first-quarter earnings, the company's stock rose 8 percent despite mostly unimpressive financial results, mainly from investor excitement over Alibaba's hyper-growth.
In after-hours trading, Yahoo's stock is at just below $37 dollars, about $4 short of the company's $41 spike in January.
Yahoo will continue to own stakes in Alibaba and Yahoo Japan, but with Alibaba on the brink of maturity as it prepares to enter the US public market, Yahoo needs to become the star of its own story.
The company has shown signs of life recently. Last month, the company reported a 2 percent gain in display advertising revenue -- a key financial metric. While meager, it reverses a downward trajectory in the category.
"The vast majority of companies aren't in a situation where they have billions of dollars to decide what to do with," said Jay Ritter, a professor of finance at the University of Florida. Ritter says Yahoo will certainly be pulled in numerous ways by different investors on what to do with the money -- whether its returning some of it to shareholders in the form of stock buybacks, or acquiring something shiny and new.
"To some degree, it's an admission of failure if they can't figure out what to do with the money," he said, though he'd be surprised if the company made another buy as splashy as Tumblr, the popular blogging platform that Yahoo bought last year for more than $1 billion.
Mayer has downplayed that expectation as well, giving investors a prudent wait-and-see response: "When we look at the investments we need to make in the business, you'll see the same type of mix we've been making to date," she said on the April conference call. "Some strategic acquisitions, some tuck-in acquisitions, and we really need to see what opportunities arise in terms of the ways we could deploy the cash."
Still, Mayer certainly hasn't been shy about spending thus far. She's made almost 40 acquisitions since she took over. They have mostly been small startups, or "tuck-in acquisitions," in her words, including the natural language startup SkyPhrase and the mobile video startup Ptch. The one exception has been Tumblr.
Yahoo declined to comment for this story.
Mayer has also been investing in several areas where she hopes the company can gain some sort of traction. She's doubled down on search, going back to the company's roots and developing core search algorithms.
She's also made interesting moves on the mobile search front, acquiring the company Aviate in January. The artificial intelligence service works akin to Google Now, automatically feeding a user search results on a smartphone running Google's Android operating system, based on contextual cues like what time of day it is or where you are in a city. The service could serve as a way to tie together Yahoo's several mobile properties, like Sports and Finance, as well as be fertile ground for fresh and creative ad units. The company also reportedly covets Google's position as the default search provider on Apple's iPhone and iPads and has plans to pitch Apple on giving Yahoo's search product prominence instead.
The company has also made a push in big media under Mayer. She's hired on big name journalists like Katie Couric or former New York Times columnist David Pogue, and she's ordered up premium original TV shows to compete with the programming of Netflix and Amazon.
But the challenge Yahoo faces as it seeks to compete in all these areas is that the incumbents are some of the fiercest names in technology: Google, Apple, Amazon, Netflix, and others. And without the security blanket of leaning on Alibaba's might during earnings reports, the pressure is on for Mayer to find something else to fill the void.