Marissa Mayer may be running out of time at Yahoo

Show Caption Hide Caption Who will buy Yahoo? Reports are swirling that Yahoo will sell its core search and display business, but is anyone waiting in line to buy it?

SAN FRANCISCO — When Marissa Mayer was hired to save Yahoo as CEO more than three years ago, she was greeted as a conquering hero despite what many considered a next-to-impossible task.

Today, she faces more pressure than ever to turn around an Internet icon.

As Yahoo's board mulls the sale of the company's Internet business, according to news reports, Mayer and Yahoo face a litany of problems.

Its take of global digital ad sales is shrinking. Yahoo's slice of the search market hasn't budged. The stock (YHOO) has slid 29% this year, even with intermittent breaks such as Wednesday's rally.

Yahoo declined to comment on whether the board was holding a series of meetings on the potential sale of its Internet business, which was reported by The Wall Street Journal on Tuesday. That is one of several options the board has considered as the company continues to struggle, a source close to Yahoo told USA TODAY. The source asked not to be named because they are not authorized to speak on behalf of the company.

What had become an increasingly untenable situation worsened after influential activist investor Starboard Value demanded Yahoo keep its more than $30 billion stake in Alibaba Group Holding, and instead sell off parts of its core Web business. In a letter to Mayer and other executives, delivered in November, Starboard pointedly asked for a "change in culture," though it didn't go into details on what the change would be.

Starboard did not return a phone message.

The spinoff is likely to be completed in January.

Investors not only are growing restless, but Yahoo employees are souring on Mayer, Yahoo’s sixth CEO since 2007. Since she took over in July 2012, the company's annual revenue has declined 7%. Profitability has plunged despite $7 billion in spending on mergers-and-acquisitions and research and development, and amid an executive exodus.

An annual employee survey, meanwhile, found that a significant number of Yahoo’s employees disapprove of Mayer's job performance, according to a source close to the company who requested anonymity.

Yahoo declined to comment on this report, and Mayer was not made available for comment.

CRUNCHED BY COMPETITORS

Mayer was considered the right person at the right time upon her arrival at Yahoo. The company, reeling from a string of disappointing CEOs and scrambling to compete in an era increasingly dominated by mobile apps and social media, welcomed a charismatic figure who had earned her bona fides as an early Google employee.

She immediately set up an aggressive strategy of acquisitions and executive hires, and graced a magazine spread in Vanity Fair as one of the world's most recognizable female CEOs.

But Yahoo’s core business is being squeezed by a variety of competitors — from chief rivals Google and Facebook to upstarts Instagram and Snapchat.

No matter how one slices the numbers, it doesn’t add up for Mayer & Co. Google and Facebook continue to dominate the $170.2 billion digital advertising market worldwide, with a combined 40%. Yahoo’s share, by comparison, has shrunk to 2%, according to research firm eMarketer.

On the mobile ad front, it’s worse. Google and Facebook command roughly half of the $72.1 billion global market; Yahoo's share is 1.5% and falling, eMarketer says.

Even Yahoo's share of ad sales from search, a specialty of Mayer's at Google, where she was director of consumer Web products, has slipped, according to eMarketer.

Not everything has unraveled under the oft-criticized and overly scrutinized Mayer.

Highly publicized acquisitions of Tumblr ($1.1 billion, 2013), a popular blogging and social-networking platform, and mobile analytics firm Flurry have panned out, bolstering Yahoo’s 1 billion monthly active users.

Mayer made canny decisions on Tumblr and more recently on its acquisition of style site Polyvore and is a "brilliant woman," says Brit Morin, who worked for Mayer at Google and counts Mayer as an investor in her media company, Brit & Co.

"I think the vision at large was right but there’s just a tangled mess underneath that she’s still trying to untangle," says Morin.

Yahoo’s content through its sports, finance and tech properties is respected, though many question the $10-million-a-year contract lavished on Katie Couric, who serves as Yahoo global news anchor.

TUMULTUOUS CHANGE

Mayer has not commented publicly on Starboard's letter and, through a company spokeswoman, declined to comment on it for USA TODAY.

A handful of current and former employees interviewed for this article say Mayer's leadership has been hamstrung by a tendency for her to micro-manage — such as tinkering with the design of the new Yahoo logo in 2013, as well as filling in as de facto chief information officer after the former CIO, David Dibble, left in 2013. That has stalled the decision-making process and alienated talented managers, those employees say.

The management team Mayer put in place is largely gone. About a dozen key executives have left this year: Kathy Savitt, head of digital media projects, left in September for movie studio STX Entertainment; Jacqueline Reses, chief development officer, bolted to Square, which recently went public, in October; and Mike Kerns, senior vice president in charge of the home page, departed in the spring.

"I think the board needs to ascertain why are all these talented executives leaving the company and is there a culture problem," said SunTrust Robinson Humphreys Internet equity analyst Robert Peck in an interview. "And if there is, you therefore need a shake-up in management to reinstitute the correct culture and get the core (business) going again."

Maynard Webb, chairman of Yahoo's nine-member board of directors, declined to comment. The board comes up for re-election next summer.

A key misfire was the hiring of Henrique de Castro, a former Google sales executive brought in as chief operating officer. When he failed to meet advertising revenue goals, de Castro stepped down in early 2014 after only 15 months, but not before he collected more than $100 million in compensation and severance. Chief Information Officer Mike Kail, who came from Netflix, departed in May 2015 after spending less than a year at Yahoo.

Yet during Yahoo's third-quarter earnings call in early October, Mayer said the "design and changes in Yahoo's leadership team are the result of careful planning."

Alibaba remains a vexing point for Mayer, 40, and Yahoo. Mayer largely ignored the importance of the investment — currently valued at more than $30 billion — until she realized its worth, says a former company executive who requested anonymity because they are not authorized to speak on behalf of the company.

She then tasked then-Chief Development Officer Reses with establishing a rapport with Alibaba’s management team, something Mayer refused to do, according to two sources with direct knowledge of the situation.

Yahoo bought a 40% stake in Alibaba for $1 billion in 2005. (The stake is now at 15%.) Last year, Starboard — which owns 0.8% of Yahoo's outstanding shares — urged Yahoo to spin off the Alibaba stake.

A spokeswoman for Square, where Reses heads Square Capital, its business financing service, said she was not available for comment.

Relationships with advertisers and agencies have also been rocky, by some accounts. Her executive team had to persuade Mayer to attend and deliver a keynote at the January 2014 Consumer Electronics Show, as well as to attend the Cannes Lions International Festival of Creativity in June 2014 to network with what is a vital customer constituency for Yahoo, a former Yahoo executive said.

Reviving Yahoo will take nothing short of a "reboot," says a former Yahoo executive who asked not to be identified out of fear his friends still at the company will suffer reprisals. That will require a sell-off of non-core, unprofitable businesses and a major workforce reduction. To get big again, he said, Yahoo needs to get small first.

A MURKY FUTURE

The clock is ticking down to late January, when the spinoff of Alibaba shares is scheduled to go through. It's not just Starboard that is concerned about the tax implications of the spin. SunTrust Robinson Humphreys delivered a memo to the Yahoo board Nov. 13 suggesting that the board consider waiting until more information is gathered before actually spinning off the Alibaba shares.

A Yahoo turnaround "was a difficult situation for any CEO to step into because it is a large media property," SunTrust's Peck said. "Having said that, I think there were some strategic errors."

Mayer should have begun cutting costs earlier and could have usurped AOL's part in a 10-year deal made with Microsoft in June, Peck said. In that arrangement, AOL delivers ads across Microsoft's properties including MSN and, in return, Microsoft processes search queries and search ads for AOL.com.

A speedier push to mobile innovation and better acquisitions would have improved the situation, too. "The Tumblr acquisition for $1 billion hasn't proven as fruitful as they originally hoped," he said.

"If the core continues to deteriorate, we think that investors will get agitated and it’s likely she is not here in 12 months," Peck said.

Mayer has vowed to articulate a plan to “narrow our strategy and focus on newer products” that could result in thousands of layoffs. There is also the strong possibility of a private equity firm buying up pieces of Yahoo.

The wheels seem set in motion for changes, by January at the latest. Whether Mayer will be there to oversee them is the question.