The CEOs of Yahoo, IBM, and Hewlett Packard have all presided over disappointment and I would not invest in their shares.
But the nature of that disappointment is not the same for each of them.
While all three of them led their companies to declining revenues, one of them, Mayer, can at least point to increased profits and a stock market pop under her tenure.
The underlying problem from which they all suffer is a deep failure in the way that most large technology companies develop new products.
Simply put, Yahoo, IBM and Hewlett Packard are among many big tech companies that nod in the direction of innovation by spending lots of money on R&D but have very little revenue growth to show for it.
And lacking the ability to come up with new products that can generate unexpectedly high revenue growth, these companies get devoured by Wall Street sharks as so much chum for private equity firms that can borrow money to buy business units that generate steady cash flows or so-called activist investors who profit from forcing them to disgorge profitable investments.
The failure of most CEOs to grasp the concept of innovation is nicely captured in a highly-touted Boston Consulting Group survey of 1,500 top executives that cites Apple and Google as the most innovative companies.
These results suggest that most of the respondents don't think very deeply about innovation. If they did, they would notice that Apple has not introduced a meaningful new product since 2010 when it launched the now-declining iPad.
And Google -- for all its highly-touted side-projects and creative corporate structure -- is still a company that derives most of its revenue from search advertising which it perfected many years ago.
To be fair, those 1,500 respondents did get one right -- Amazon (albeit ranked #9 when I think it should be #1) -- whose CEO, Jeff Bezos, is a founder who just keeps on coming up with new products and services that yield persistent revenue growth of 20% or more while generating the occasional profit surprise.
Yahoo, IBM, and Hewlett Packard have all declined because they have lost the ability to come up with new products that will yield sufficient revenue growth. That lack of dynamism is the core reason to avoid their shares.
Let's look at each one of them individually.
Yahoo
Marissa Mayer took over as Yahoo CEO on July 17, 2012. Since then its revenues have fallen -- down 8% from $2.4 billion in six months ending June 2012 to $2.2 billion in the same period of 2015 -- while its profits increased 27% from $463 million to $586 million.
Mayer spent at least $2 billion on acquisitions -- such as the $1.1 billion its spent on the Tumblr blog platform and another $640 million on premium advertising service, BrightRoll -- and content initiatives (of which it wrote off $42 million in October) that have not translated to higher revenues.
Nor did this paper-shuffling halt a loss in digital advertising market share for Yahoo. eMarketer predicts it will win 2% ($3.4 billion) of 2015 global digital ad revenue down from 2.4% in 2014.
The good news is that Yahoo's stock price has more than doubled -- from $15.64 to $35.65 -- thanks to its $8.3 billion worth of stock buybacks and the value of its Alibaba and Yahoo Japan stakes, according to Reuters.
Due to the buybacks, Yahoo's market capitalization has grown by a lower amount -- 66%, notes Reuters.
Now Yahoo is trying to figure out how to pay as little tax as possible on its stake in Alibaba.
As Bloomberg reported, the taxes on Yahoo's $32.6 billion stake in Alibaba would amount to $11.4 billion -- leaving an after-tax value of $21.2 billion.
A little math and you arrive at a value of $1.7 billion for its core business.
How so? To the Alibaba stake's after-tax value, add the after-tax value of its Yahoo Japan shares ($5.4 billion) and its cash and marketable securities of $6.8 billion then subtract the value of its $1.4 billion in convertible debt and its $33.8 billion market capitalization.
Others have valued Yahoo's core business at from $1.9 billion to $3.9 billion, according to the Wall Street Journal.
What's next is probably a breakup of the company -- selling that core business to a private equity firm and leaving the Alibaba and Yahoo Japan shares inside Yahoo -- most of which is reflected in its current stock price.
IBM
Virginia Rometty has been CEO of IBM since January 2012. During her nearly four year tenure, IBM's revenues are down 22% from $106.9 billion in 2011 to $83.7 billion in the last 12 months; profits have declined 10% from $15.8 billion in 2011 to $14.2 billion in the last 12 months, and its stock price has fallen 24% to $139.78.
Rometty has argued that IBM is investing in new businesses -- such as cloud services and big data. But that investment has yet to pay off in terms that matter to investors -- most notably Warren Buffett who has lost an estimated $2 billion on his bet on IBM.
And given the size of its old businesses and its lack of advantages over rivals in the markets where it's investing, Buffett and others betting on an IBM recovery will be holding their breaths a long time before they see those investments pay off.
Hewlett Packard
Meg Whitman became Hewlett Packard's CEO in September 2011. During her reign, HP revenues, earnings, and stock price all declined.
More specifically, HP's revenues fell 22% from $95.1 billion in the nine months ending July 2011 to $77.6 billion for the same period in 2015; profits have declined 10% from $6.8 billion in in the nine months ending July 2011 to $3.2 billion during the same period in 2015, and its stock price plunged 46% to $11.95.
To be fair, the HP that she took over is not the same one that trades today under the HPQ symbol.
HP, the consumer PC and printer company, is all that remains after Whitman oversaw the November 2 public offering of Hewlett Packard Enterprise -- of which she is CEO -- that delivers hardware and services to companies.
Sadly this paper entrepreneurialism was old wine in new bottles -- endowing neither company with new products that would accelerate their revenue and profit growth.
Since then, HP has lost 13.6% of its value -- due to a weak earnings outlook given last month -- and Hewlett Packard Enterprise's shares are about where they were on their first day of trading.
Big companies that aspire to enjoy higher stock prices need to invent new products and services that boost revenues and profits faster than investors expect.
These three CEOs have not demonstrated that they can do this.
Avoid their shares.
