SAN FRANCISCO – Yahoo Inc. Chief Financial Officer Tim Morse, aiming to boost profitability while adding Internet content and services, says he plans to reverse the company’s pattern of overpaying for acquisitions.
“You’ve seen our track record on M&A with buying really high and selling pretty low,” Morse said in an interview. “We’ve got to be careful.”
Appointed finance chief a year ago, Morse says he intends to improve the return on invested capital, a measure of how profitably Yahoo is spending, to between 18 percent and 24 percent in 2013 from about 5 percent in 2009. To do that, Yahoo will shun high-priced targets that don’t fit with the company’s strategy, Morse says.
Yahoo, the second-biggest U.S. search engine, agreed to sell its HotJobs website for $225 million in February after paying about $436 million for it in 2002. In January, Yahoo sold Zimbra, an e-mail and collaboration unit, netting $100 million. Yahoo bought it in 2007 for $350 million.
Acquired companies will have to help Yahoo meet profit targets, says Morse, 41.
“It’s got to have a business model, it’s got to fit into our strategy,” Morse said. And Yahoo needs to be able to get it for “a relatively good price,” he said.
Morse, who joined Yahoo five months after Carol Bartz was named chief executive officer in January 2009, came from chipmaker Altera Corp., where he was CFO. He spent the prior 15 years at General Electric.
Management’s mandate is to reverse the sales growth slowdown that more than halved Yahoo’s stock price since the beginning of 2006. The company is grappling with competition from larger rival Google and surging growth in social-networking sites such as Facebook and Twitter.
Morse has helped Bartz cut expenses by about $1 billion and plans to remove an additional $1.5 billion in costs to expand profit margins and add to cash holdings.
“Between Carol and Tim, I think they’re bringing a lot of operational focus,” said Sameet Sinha, an analyst at JMP Securities in San Francisco. “Yahoo was just run in a very haphazard manner.”
Overspending helped drive down Yahoo’s return on invested capital to about one-quarter the return for Google, Bloomberg data show.
To drive out costs, Morse asks colleagues who want to invest in one area to tell him where they can “de-invest” in another.
“Tell me the other efficiencies that you’re wringing out of the system,” Morse said. “Tell me how you’re going to fund that yourself.”
Yahoo should stick to acquisitions of about $100 million or less that help the company make more money from its 600 million users, said Ryan Jacob, CEO of Jacob Funds in Los Angeles, which owns Yahoo shares. “The way to go is small,” he said.
