What Jerry Yang’s Departure Means for Yahoo

by Jonathan Berr | January 18, 2012 8:34 am

Jerry Yang’s abrupt departure yesterday from Yahoo (NASDAQ:YHOO[1]) is a clear signal that the company he co-founded is on the block. A flashing neon “For Sale” sign would be less subtle, and that’s the problem.

Pressure is so intense from shareholders — including activists such as Daniel Loeb — that Yahoo has little choice but to quickly sell[2] anything that isn’t nailed down, including its 40% stake in Yahoo Japan and its 35% interest in Alibaba. Talks with Alibaba, which the The New York Times[3] says are underway along with separate discussions with Softbank about Yahoo Japan, were reportedly being stymied by Yang.

“At times, Mr. Yang’s opinions seemed to diverge from the board’s consensus. . .creating a tense — and occasionally confusing — backdrop for negotiations,” the Times said.

The changes, though, can’t stop with Yang’s departure.

Yahoo will have to be rethought from top to bottom because like AOL (NYSE:AOL[4]), Yahoo does not make sense[5] as it currently exists. Today’s Internet users don’t want a one-stop shop for everything from photo-sharing to dating to stock quotes. What will become of the pioneering Internet company is anyone’s guess.

At least shareholders are optimistic. The Sunnyvale, Calif. company’s stock, down nearly 50% over the past five years, jumped more than 2.5% yesterday after hours on the Yang departure announcement, and it’ll probably rise again today. But for shareholders, there’s always a sense of what might have been with Yahoo but was never achieved, largely because of Yang’s ineffective leadership. It had an inauspicious start.

When then-CEO Terry Semel was forced out of Yahoo in 2007, he gave the already-struggling company some prophetic advice: “This is a time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its potential,” he was quoted as saying[6].

Nothing of the sort happened. Instead, Yang, who co-founded Yahoo with David Filo in 1995, became CEO. A year later came the calamitous decision to reject Microsoft[7]’s (NASDAQ:MSFT[8]) $47.5 billion offer, which Yahoo argued at the time “substantially” undervalued the company. As of yesterday, its market capitalization was $19.14 billion.

Whatever skills Yang had in building Yahoo into what was once the most-visited site on the Internet failed him when he ran the company. In 2009, he was replaced by Carol Bartz. Hope sprang anew that Yahoo would return to its glory days. A May 2009 Reuters report [9] spoke approvingly of a management overhaul that Bartz was making, saying it was “exactly the kind of shake-up needed at Yahoo.”

Sadly, that optimism was soon dashed. Bartz was fired in September, and Yahoo went into another tailspin. Earlier this month, Scott Thompson was named Yahoo’s latest CEO[10]. New members may soon be joining the board, and old ones are likely to depart, according to the Times.

Yang’s decision to immediately sever ties with the company he co-founded 17 years ago marks the end of an era and the beginning of yet more uncertainty. But for Yahoo to have a future, it has no choice but to shed its past.

Jonathan Berr doesn’t own shares of any companies mentioned here.

  1. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  2. Yahoo has little choice but to quickly sell: https://investorplace.com/2012/01/yet-another-distraction-for-yahoo/
  3. The New York Times: http://www.nytimes.com/2012/01/18/technology/jerry-yang-chief-yahoo-steps-down-from-board.html
  4. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  5. Yahoo does not make sense: https://investorplace.com/2011/11/yahoo-yhoo-jerry-yang-plan-is-nuts/
  6. he was quoted as saying: http://news.bbc.co.uk/2/hi/business/6765893.stm
  7. calamitous decision to reject Microsoft: https://investorplace.com/2011/12/yahoo-dont-blow-it-again/
  8. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  9. A May 2009 Reuters report : http://uk.reuters.com/article/2009/05/05/yahoo-idUKLNE54400I20090505
  10. Scott Thompson was named Yahoo’s latest CEO: https://investorplace.com/2012/01/scott-thompson-paypal-new-yahoo-ceo/

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