When Does Yahoo! Change CEO?

Ever since the Microsoft deal fell through, Yahoo! has been in a free fall mode. The stock got battered and hit a new 52-week low yesterday of $17.75. Shareholders have received a callous treatment in the hands of the Board and Management, and now Carl Icahn and his buddies have stepped in to make things better. Well, things seem to be getting much worse before any signs of “better” comes along.

Yahoo!’s (YHOO) Q2 results were disappointing. Revenues of $1.35 billion in the quarter grew 8% over the year but failed to meet the Street’s expectation of $1.40 billion. However, the company was able to meet EPS expectations of $0.10. By segment, Marketing Services revenue grew 7% to $1.14 billion for the quarter. They earned $0.21 billion as Fees revenue. By region, revenues from the US grew 6% over the year and international revenues grew 14% in the period. Yahoo! did express concerns about economic conditions, particularly softness in advertising for financial services, travel and retail, which impacted their brand display advertising. They expect Q3 GAAP revenues of $1.78-$1.98 billion with TAC percentage of 25-26%. For the year, they are projecting GAAP revenues of $7.35- $7.85 billion with operating cash flow guidance of $1.83-$1.98 billion.  

Yahoo! has been trying, much against my liking, to portray themselves as a stronger search engine. They took quite a few initiatives last quarter in the search space. They launched Search Monkey, which provides “outside developers control over the appearance of their search results, including photos, logos, and multiple relevant links directly in the search results.” They also launched Glue Pages in India which deliver “more relevant, visually appealing search results from across the web in one topical page.” Finally, they launched Build Your Own Search Service (BOSS), “which opens up their search infrastructure and technology to developers and companies and empowers them to create custom search experiences off Yahoo!.”  

During the quarter, they also signed an advertising agreement with Google. As part of the transaction, Yahoo! has allowed Google to put search ads on the Yahoo! site for a potential $800 million opportunity; the company sees the transaction as the next step to creating a more open advertising environment. They continued to improve on their content in the quarter. Yahoo! Buzz expanded to over 350 publishing partners, surpassing Digg to gain the number one position in its category. 

Yahoo! also spent $22 million in the quarter on advisors to deal with the Microsoft bid for acquisition. As Microsoft has revoked the offer to purchase, Yahoo! still has a chance to become the Web 3.0 jewel I believed it could be. It needs verticalization and some serious changes at the top management level.

A new CEO would really help. How long do shareholders need to wait? How much worse does the situation need to get?