Yahoo Takes $12 Billion Path to Mobile Social Space

May 16, 2012

Troubled Internet leviathan Yahoo has made a dramatic entree into the mobile social networking space with a $12 billion dollar acquisition of Path - the nascent social "mininet" on iOS and Android founded by a prominent former Facebook employee.

The deal sets a clear new mobile-centric strategy for the Silicon Valley's leading Internet portal cum email service - which has struggled to adapt to the rise of Web 2.0, social media, video sharing, search engines, tha mobile web, and just about every other innovation on the Internet since hypertext.

The move is also intended to draw a line under the firms more acute troubles, which include an activist hedge fund seeking boardroom changes and its CEO departing this weekend under allegations he had doctored his resume.

New CEO Ross Levinsohn is reportedly the brainchild behind the move, which comes on the heels of Facebook's acquisition of mobile social photo app Instagram.

Sources close to Levinsohn says he hopes to overcome Yahoo's failure to create a social media presence by leapfrogging its competitors and going directly to mobile. The company plans to take a hands off approach to management and simply give the firm the resources and the promotional power to succeed.

"The future is clearly in these little mobile app thingys where you can share photos and stuff."

The Beaten Path

Although Path is widely considered to be a promising new app, analysts were puzzled by the price of the acqusition given that Path is rumored to have under a million users - compared to over 40 million for Instagram.

Adding to the skepticism is Yahoo's own history of making expensive acquisitions which later go bad - the most famous being the one that gave the obnoxious Mark Cuban enough money to start buying basketball teams.

Even Path's founders and investors are puzzled by the timing and terms of the acquisition. The Daily Currant caught up with Path's Founder and CEO Dave Morin aboard his new Gulfstream G650. He explains how the sale came about:

"This guy just showed up at our offices and announced that he was the CEO of Yahoo and that he wanted to buy us for $10 billion. I was speechless. He saw the shock on my face and mistook it for hesitation. Before I could even speak he had talked himself up to $12 billion. Our board approved the deal within the hour."

Selling the Good China

To finance the deal Yahoo will be unloading it entire stake in Yahoo Japan and Chinese internet leader Ali Baba Group.

"Frankly I think this whole China thing is overblown." Levinsohn explains, "1.2 billion people, the most internet users in the world, annual GDP growth of 9% for over a decade...blah blah blah...whatever. Sounds like a fad to me. Frankly I don't think the future is in China. The future is clearly in these little mobile app thingys where you can share photos and stuff."

Yahoo will also be taking on $6 billion in debt to finance the acquisition, structured as a syndicated loan from several investment banks.

Most Wall Street analysts were nonplussed by the financial terms of the acquisition, although one tech analyst is slightly more optimistic:

"The problem with Yahoo until now has been a lack of a clear strategy for adapting to a changing web and an inabiluty to make bold decisions. Say what you want about the wisdom of emptying your cash reserves, selling every strategic asset you have, and taking on in insurmountable debt load to buy a sexy mobile app that hardly anyone uses - but it's certainly bold."

Joe Argenta - a prominant analyst at UBS - captured the mood of the market:

"They could have had this company for $200 million. This price is insanely inflated and a clear sell signal. Leave it to Yahoo to take a relatively good business idea and turn it into complete failure.