Former Yahoo COO says the company should go private so it can make 'big, bold bets' (YHOO)

Bloomberg West

Dan Rosensweig is the founder and CEO of Chegg, the publicly traded textbook rental company that's worth about $620 million.

But before Chegg, he cut his teeth as the COO of Yahoo for 5 years. Under his watch, Yahoo expanded its userbase from 200 million to 500 million, and its annual revenue grew from $700 million to roughly $4.5 billion.

So naturally, he has fond memories of Yahoo. And despite all the turmoil surrounding the company now, Rosensweig still believes the company could turn it around.

"Everybody's rooting for their success," Rosensweig said in a TV interview with Bloomberg West on Wednesday. "There’s a lot of value that’s inherent in what they built and what can be done with it."

Rosensweig pointed out that Yahoo still books $4 billion in revenue and earns $900 million before interest, depreciation, tax, and amortization (EBITDA) — a much higher number than what some of the popular new online media companies are generating. Yet, investors are giving Yahoo's core business almost no value.

"There’s clearly a mismatch between what Yahoo’s worth and what investors are saying it’s worth," Rosensweig said.

Rosensweig may have a point. Yahoo still has billions of visitors, making it one of the largest sites on the web, and it also has one of the most recognizable brands in the world. It has over $4 billion in net cash. Some Wall Street analysts think Yahoo's content business and startups acquired could be worth over $3 billion, if sold separately.

Rosensweig believes the company's declining growth partly has to do with all the distractions that come with being a public company, and going private to focus on long term growth could be the answer to turning it around.

"In the last 9 years since I’ve left the company, [Yahoo's] had 6 CEOs, 3 board turnovers, 2 activist investors, and an unfavorable tax ruling," Rosensweig added. "I do think this is a company that could benefit from fewer distractions, maybe not even be a public company at this point — be a private company, and choose to make big, bold bets on the future."

That could be one of the future options for Yahoo's board, as it explores to break up its core business. Earlier this month, Yahoo decided to scrap the idea of spinning off of its stake in Alibaba, which is valued at roughly $32.5 billion, choosing to spinoff its core business and its stake in Yahoo Japan instead.

"I do think that if they can get focused, get rid of the Asian assets, distribute the capital the way they think they need to distribute it, keep enough capital to invest in the company...this is possible. I think we should continue to root for their success," he said.

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