Another one bites the dust. Another employee of Yahoo! Inc. (NASDAQ:YHOO) has been unceremoniously separated from the company, that is.
With Kevin Gentzel officially ending his seven-month career (or had it ended) with YHOO as its head of North American sales earlier this week, the struggling internet company has now cut ties with three formerly-heralded executives under CEO Marissa Mayer’s short-lived tutelage.
Former Chief Revenue Officer Michael Barrett was given the boot shortly after Mayer arrived in 2012, and his de facto replacement Henrique de Castro was removed from his COO post by Mayer in 2013 after just 15 months.
For YHOO shareholders who’ve effectively seen Marissa Mayer install a revolving door for the company’s executive management team, it would be easy to conclude she’s just picky, looking for the perfect chemistry among the people surrounding her.
In reality, however, the exit of Kevin Gentzel may confirm what some owners of Yahoo stock are already quietly suspecting … that Yahoo is missing the proverbial boat with Mayer at the helm, and she’s deflecting the blame towards the people around her.
Where YHOO is Falling Behind
Internet advertising sales can be a brutally competitive business. Most investors understand that, and were willing to give Yahoo ample time to build or rebuild an organization that can grow the top and bottom line.
The depth of Yahoo’s failure to do so, however, didn’t become clear until this week when Verizon Communications Inc. (NYSE:VZ) chose to acquire AOL, Inc. (NYSE:AOL) — AOL, arguably the internet’s saddest lost cause at one point –– as a means of getting Verizon deeper into the ad sales game.
Yahoo, occasionally named as a potential acquisition target, didn’t even interest Verizon as a potential partner, let alone a buyout possibility.
The driver for the acquisition was AOL’s ad-selling technology. It’s what’s called a programmatic ad-selling platform, meaning rather than sold by humans and inserted into web pages manually with the mere hope that the right consumers see the ad at the right time, AOL’s ad spaces are sold in real time based on a wealth of demographic and response-rate information supplied to the platform’s users.
The result is more effective (and usually cheaper) advertising results, and AOL has shown measurable ad-revenue growth using this structure.
To be clear, YHOO offers a programmatic ad platform to its advertisers as well. Yahoo just doesn’t “get” the way ads are really sold in 2015. It matters, because according to internet advertising information website EMarketer, programmatic ad sales grew 136% to $10 billion last year, and should grow another 49% this year.
Why Kevin Gentzel Was Doomed From the Start
The differences between the YHOO platform and the AOL platform will seem nearly imperceptible to the layperson. And from a technical perspective, they are. The differences though, however subtle, have been critical.
For starters, though AOL largely acquired its way into becoming a programmatic ad-selling media company by buying Gravity, Adap.tv, and Pictela (just to name a few). From day one AOL CEO Tim Armstrong was optimizing them and customizing them into the ad-selling machine he knew they could become for the company.
As he’s described it on more than one occasion, “AOL skated to where the puck was going.”
Owners of Yahoo stock, conversely, have watched the company flounder its way into the programmatic ad industry, mostly — almost exclusively — via the acquisition of BrightRoll and Flurry late last year. Much like the decision to acquire Tumblr, however, Mayer doesn’t quite seem to know what do with Flurry BrightRoll now that she has them.
Indeed, Yahoo stock owners may should be concerned that it was only in February that Mayer declared YHOO was a “mobile-first” company. She’s not wrong with the new focus; mobile really is the future. The problem is, mobile was the future a year and a half ago.
If Yahoo is just now figuring this out and truly retooling for it, it’s largely too late.
In the same vein, if Yahoo has yet to figure out how to compete in the programmatic ad arena (and it hasn’t), then it’s already miles behind competitors like AOL and Facebook Inc. (NASDAQ:FB).
It was a vulnerability Kevin Gentzel was never going to be able to shore up on his own.
Bottom Line for Yahoo Stock
No problem is ever completely insurmountable when there’s enough time, creativity, and money to throw at it. But, there’s little doubt that Yahoo — and by extension, YHOO investors — are well behind the leaders largely because Mayer invested more in web content than she did in ad technology.
Giving credit where it’s due, it was Pivotal Group’s analyst Brian Wieser who pointed out where Yahoo missed the mark, saying “They’ve [YHOO] invested far too heavily in content, which is the commodity asset,” following news that AOL rather than Yahoo had been acquired by Verizon.
That’s in stark contrast to AOL’s focus since 2011, when its Huffington Post acquisition was the last of the major content-driven deals the company made. Ever since, it’s been more interested in ad technology.
Wieser then went on to suggest Yahoo’s ad-selling technology is just now where AOL was in 2012. That may was well by 1912 when you’re talking about the fast-moving internet.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
