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Marissa Mayer Faces Yahoo Board's Ire for Security Breaches

Zacks Equity Research

Yahoo! Inc. YHOO board has penalized CEO Marissa Mayer, calling her negligent of the security breaches that led to theft of personal information of over 1 billion users.

The board has decided not to pay Mayer her bonus and stock reward. She is otherwise eligible for an annual bonus of up to $2 million and annual stock reward of millions of dollars.

In Sep 2016, Yahoo announced that at least 500 million users were affected by a late 2014 cyber-hacking incident led by a “state-sponsored” actor. The stolen information included people’s names, birth dates, passwords, and, in some cases, answers to personal security questions.

Yahoo yesterday stated that an independent internal investigation has revealed that an unnamed foreign government backed hacker was behind the 2014 cyber attack and Yahoo executives had "failed to act sufficiently" upon discovery of the incident.

The report criticized Yahoo’s legal department for failing to timely analyze and investigate the matter followed by sudden departure of General Counsel Ronald Bell. Bells resignation, effective Wednesday, might be an indication of worse things to come. Bell resigned without severance pay.

Mayer is already under pressure from users, investors and analysts over late admittance of this data breach and yet delayed data breach news worsened things up.

In Dec 2016, Yahoo announced a separate, even more massive breach of user data. The Internet company disclosed that more than one billion user accounts had been hacked in Aug 2013.

Yahoo! Inc. Net Income (TTM)

Yahoo! Inc. Net Income (TTM) | Yahoo! Inc. Quote

Verizon Gains, Altaba Suffers

The breaches, two of the largest in Internet history, have already cost Yahoo $350 million. Verizon will now buy Yahoo’s core internet business at a discount of $350 million for $4.48 billion.

The newly negotiated deal will also make Altaba, Yahoo’s new name post acquisition, responsible for all costs stemming from shareholder lawsuits and a regulatory inquiry of Yahoo by the Securities and Exchange Commission. However, Verizon and Altaba will split costs from all other hack-related lawsuits and government investigations.

A Lot at Stake for Mayer

Losing a bonus and annual stock reward won’t move the needle much for Mayer as she is already a millionaire after serving as a top executive at Alphabet GOOGL, then called Google and Yahoo.

What will matter is the loss of reputation at repeatedly failing to turn Yahoo around, facing investors’ ire and finally being held responsible for negligence following two of the biggest cyber-attacks in history.

Over the last one year, Yahoo stock has outperformed the Zacks Internet-Services industry. It returned 40.6% compared with the industry’s gain of 12.3%.

Zacks Rank and Stock Price Movement

Currently Yahoo carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Advanced Energy Industries, Inc. AEIS and Texas Instruments Inc. TXN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While current year estimates for Texas Instruments remained unchanged, the same for Advanced Energy went up 18.2% in the past 30 days.

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