Yahoo move shows diminished faith in turnaround

SAN FRANCISCO — Another day, another dollop of drama.

It's that way with Yahoo (YHOO), whose board of directors on Wednesday scrapped plans to spin off Alibaba — the company cash cow — and create a new company. Instead, Yahoo will spin off its core business into a new company.

"In 2016, we will tighten our focus and prioritize investments to drive profitability and long-term growth," Yahoo CEO Marissa Mayer said in a statement. "A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo's business."

Under Yahoo's old plan, the new company Aabaco would have been comprised of only Yahoo's 15% stake in Alibaba, valued at $30 billion or more. Now, Yahoo plans to create a new company that is comprised of all of Yahoo's assets and liabilities other than the Alibaba stake. Think Alphabet, without the revenue and market dominance.

The batting average for successful spin-offs isn't sterling: About four in 10 are not profitable, according to a study by the Edge Consulting Group and Deloitte last year. A former Yahoo official, who asked not to be named because they are not authorized to speak on behalf of the company, said the reverse spin and possible sale of core Internet assets amounts to a stop-gap measure to buy Mayer time.

Complicating matters, some large Yahoo shareholders have their doubts about the company's vow to sell its assets, which could lead to a scrum for board seats and, ultimately, a proxy war.

Meanwhile, Yahoo also lost a key board member. Max Levchin, co-founder of PayPal, resigned from the boards of Yahoo, Yelp and Evernote to devote more time to his new venture, Affirm.

In a tweet published Wednesday, Levchin threw support toward Mayer and Yahoo.

Levchin is one of the valley's true innovators and original thinkers. His departure after nearly three years on the Yahoo board, no matter the reason, doesn't reflect well on a company that needs all the innovation and creativity it can muster.

And what of Mayer, Yahoo's embattled CEO? More than three years into her turnaround plan at Yahoo, the reversal on the decision to spin off Alibaba appears to amount to a vote of minimal confidence.

Facebook, Google and a rash of start-ups continue to marginalize Yahoo's ad revenue. Mayer will no doubt soldier on in one of the valley's toughest gigs, but with Yahoo's reversal in the Alibaba spin off, for how long?

Follow Jon Swartz on Twitter: @jswartz.