WebMD (WBMD) has come down with a serious illness.
This morning it completed a trifecta of bad news. It announced that its CEO would leave, it cut its full-year guidance and it was no longer pursuing any buyout talks.
The shares fell more than 29% in morning trading.
What has happened to this once-darling of the Internet? Remember all the positive press founder and now chairman Martin Wygod received years ago? Wygod got pushed up to chairman over the years for a lack of attention to the details of the business in favor of fresh new management.
The business, which focuses on providing medical information to doctors and patients, makes its money from ads.
The story appeared to work well up until last year. From a low in the teens, WebMD rose to $57 by February of last year. That's close to its 2007 high.
From conversations I've had with different industry contacts, WebMD suffered from a distracted management team. The internal problems that started to manifest last year were largely of its own making.
It wasn't surprising that private equity firms and other hedge funds showed interest in the company at the end of last year. Carl Icahn bought 10% of the company. Soros also took a 6% stake.
The company was close to getting bids from various private equity firms in December, according to the Wall Street Journal, but apparently didn't. They obviously has some insight into the eroding results that they announced this morning, saying revenues might be as much as 8% lower and expenses might be 8% higher.
Wygod blamed this morning's results on a few Big Pharma companies losing some patent protection recently. Uh, didn't you know that was coming for a long time?
As to why it would keep spending money so aggressively in the face of declining revenues, WebMD just said that it felt that it needed to continue to invest in new areas like mobile and social. That seems strange to me and I can't imagine that Icahn and Soros are happy about it.
Yahoo! (YHOO) was reportedly sniffing around WebMD. Just Friday, Citi analyst Mark Mahaney said he thought it would make sense for Yahoo! to acquire WebMD through the cash-rich split on the table because Yahoo! could sell more display ads on it.
As of this morning, WebMD is no longer for sale. Apparently, the board feels that it could only sell the company for far less than it thinks it's worth.
This shouldn't have any negative ramifications for Yahoo! It had several other names of Web assets it might wish to acquire and there was nothing particularly remarkable about WebMD compared to the others.
It seems as though WebMD needs to replace its board -- including Wygod, who has been a constant -- if it truly wants to start fresh and do a much better job at running their business.