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Can Marissa Mayer Turn Around Her Turnaround of Yahoo or Is the "End Game Near"?

Despite pressure, the Yahoo CEO is signaling to her critics: It's my money and I'll buy more if I want to.

Over the past several weeks, in interview after interview with large Yahoo shareholders and other close observers of the company, the meme that has continued to develop over the last year is clear.

Which is that CEO Marissa Mayer and CFO Ken Goldman have been told by its major investors that the Silicon Valley Internet giant needs to return most, if not all, of the billions of dollars in proceeds the company has gotten from its recent sale of Alibaba Group in China back to them in some form.

I had reported these initial rumblings for a dividend or stock buyback much earlier this year, as some became increasingly worried about Mayer’s seemingly scattershot and frantic acquisition strategy of buying up dozens of small startups — some promising, but many simply inevitable losers as independent concerns — that has yet to yield any significant progress in Yahoo’s core business or result in the innovative and breakthrough product she has been promising for two years.

The noise has only gotten louder after the Alibaba IPO, with the attack by small-bore activist shareholder Starboard Value, which said out loud what bigger players had been telling Mayer and Goldman privately.

Mayer gave the typically perfunctory we-are-working-on-it answer when Starboard wrote that, among other things, it wanted her to cut costs, suggested that she return the Asian money, claimed her acquisition strategy was flawed and even suggested she buy AOL. Luckily for Mayer, no larger and more dangerous investors stepped up publicly to add pressure.

That could change soon depending on what the high-profile exec says today in announcing the company’s third-quarter earnings that Wall Street is expecting to continue to be weak and, more importantly, lagging the industry badly. Sales have been down many quarters in a row — a lackluster performance that is actually hard to pull off in the recent frothy sales environment for Internet companies. Analysts expect more of the same later today, with $1.05 billion in revenue in the quarter, a close to three percent decline over last year.

What to do? Well, the Wall Street Journal reported she would announce plans to make cost cuts she has long resisted and also “give new details about how the company is evaluating possible acquisitions.” It added that a “large acquisition could help Ms. Mayer generate significant new streams of revenue at Yahoo.”

In other words, Mayer is signaling to her critics: It’s my money and I’ll buy more if I want to.

That should come as no surprise since Mayer has used acquisitions — including her billion-dollar buy of Tumblr — in her ongoing efforts to turn around the company. Her plan has been a multi-year one, using a strategy of attracting new users, then advertisers, then revenue.

“The future for us,” she said dramatically in the summer of 2013, a year into her tenure, “is that virtuous cycle.”

Not so much, of course, with Yahoo’s core business still a dog. But sources close to her said she is determined — and Mayer is nothing if not determined — to continue to push through a vision of a video-heavy, mobile-focused content juggernaut that serves up lucrative advertising opportunities to marketers.

So what now? Here are some major factors you need to pay attention to:

Why Buy the Cow, When You Can Get the Milk …

Numerous analysts and investors have pointed out that the neat trick of owning Yahoo stock to get shares of Alibaba is now over, or close to it. The recent sale of a chunk of its assets garnered the company billions, but it still has more it can sell after a year lock-up, as well as a significant stake in SoftBank’s Yahoo Japan.

These two assets are still protecting Yahoo, since both present obstacles to anyone wanting to get at those treasure troves, requiring cooperation from both Alibaba and SoftBank in Japan to unlock. “Yahoo can hide behind them for a while against any real investor challenge,” said one observer.

Still, the IPO of Alibaba made abundantly clear that Yahoo’s core business was worth very little to investors — only a few billion or less than zero, depending on who is doing the calculating. Mayer has recently tried to bolster that with some hires, such as a decidedly low-key choice for head of U.S. sales, and also major efforts in pushing out native ads.

But her relationship with top sales exec, Americas head Ned Brody, remains strained (despite Brody’s protestations to the contrary, numerous insider sources say that a search has continued to replace him). That follows her disastrous experience with COO Henrique De Castro, which gives advertisers little cause to trust Mayer’s instincts here.

“Marissa still does not get advertising and maybe never will,” said one major marketer in a common sentiment. “It’s hard to hide her lack of interest and it’s reflected in Yahoo’s ad products.”

WWMB: What Will Marissa Buy?

Still, Yahoo is cash rich with about $5 billion at its disposal and a still-strong (though not as strong as pre-Alibaba IPO) stock to scoop up some tasty treats. And, in terms of acquisitions, there is a lot out there, especially ad tech companies that its M&A team has been evaluating over the last few months, as has been much reported. (TechCrunch reported that the latest interest is in video-ad focused BrightRoll for $700 million.)

Ad tech, as well as content distributors and platforms, seem to be the right kind of companies that Yahoo should be looking at, although the price steepens quickly when you get to the really good stuff that could make a difference. That includes Pinterest, Snapchat and many others, which Yahoo cannot afford or would face massive competition to nab.

Another hindrance is that Yahoo must look to companies that show real revenue and sales growth, rather than pie-in-the-sky efforts like Tumblr, which has yet to deliver to the bottom line as Mayer had promised it would. Wall Street will scrutinize her buys more carefully than ever — she has no long rope as Facebook or Google have to pay giant prices for very innovative companies that have yet to yield results. Unless she simply ignores investors, in other words, there is no WhatsApp in Yahoo’s future.

The Board Is On Board

That said, Mayer does have one major asset: The Yahoo directors, many of whom she has hand-picked, who are on largely — if not completely — on her side. To me, this is where her biggest strength is, given there is no one to really pressure her to move in any direction she does not want to. While there are often rumblings that there is some worry among a few board members, it is nothing compared to what past Yahoo CEOs have endured and has no teeth.

This matters in any fight that Mayer might get from outside investors, because the board will stick with their exec unless something goes horribly awry. It will not.

Take Her Marbles and Go Private

This is the most intriguing possibility of all that I heard over the last weeks: That Yahoo prepare to dispense with its Asian assets over the next year, return a big chunk of the money to shareholders and hook up with a large private equity firm to take the whole shebang private.

As one investor noted: “The core business is not coming back easily and it is harder to turn it around with all the public pressure on the company, so why not remove it from scrutiny just as the going gets tough?”

Most certainly, outside of the limelight that Mayer attracts so easily, it will be much easier to rebuild and remake Yahoo in the way she has suggested, taking risks and making cuts that could give Yahoo a real chance at turnaround.

“This end game is near,” said one observer rather ominously, although with some amount of logic noting that this would be a kind of victory for Mayer to land Yahoo in a safer place just as the really hard work begins.

Of course, none of this is a game, with people’s jobs and tens of billions of shareholder dollars at stake. But it is a chess match of a sort — and now we’re about to see Mayer’s most important moves to date.

This article originally appeared on Recode.net.

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