That's the optimistic take. But no matter the potential, both companies are battling for ad dollars in an increasingly competitive market with fast-growing players like Facebook and Twitter as well as the world's biggest Internet company by value, Google. Both are struggling to attract and retain talent, while salaries and perks across the industry go up and up.
Starboard's argument is purely financial. Yahoo's stakes in Alibaba and Yahoo Japan are worth more than its $40.4 billion stock market capitalization, even though the company is projected to record $4.4 billion in revenue and over $1 billion in net income this year.
The reason investors are so bearish on Yahoo, aside from all the competitive pressure, is because they expect the company to continue to be heavily taxed on its equity stakes and to spend a lot of cash searching for that elusive growth engine, Starboard said. If the New York-based investor has its way, a more tax-efficient mechanism will be put in place for the Asian investments and Yahoo will stop pretending to be a growth company.
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"Obviously, ascribing negative value to this large and profitable business is nonsensical, demonstrating to us the market's significant skepticism about the company's current strategy," Starboard said.
Yahoo isn't backing down. The company responded late Friday, saying that it would carefully review Starboard's letter. But it reiterated plans to find ways to put capital to work and said it will still be "investing in products that will drive sustainable growth: search, communications, digital magazines and video."
Furthermore, Yahoo is sending a substantial chunk of change back to investors. The company has repurchased more than $6 billion worth of shares since mid-2012, and has promised to return half of the after-tax cash from the sale of stock in Alibaba's IPO to shareholders.
According to Martin, Starboard's demands will at least serve as a reality check. Yahoo continues to pledge a turnaround, but more than two years into Mayer's term, investors aren't buying it, she said.
"Her board isn't hearing or isn't conveying the urgency that Wall Street feels," Martin said. "That changes once Starboard gets involved."