Technology

Terry Semel: Rebuilding a Portal


Position: Chairman and CEO of Yahoo!

Contributions: Has streamlined business and restored Yahoo to profitability for the first time in seven quarters

Challenges: Must prove that Yahoo's growth is sustainable, as its core business of Net advertising continues to deteriorate

Just a year ago, Terry Semel's turnaround efforts at Yahoo! were sputtering. The Internet portal's stock (YHOO) was stagnating at $8.11 -- its lowest level since February, 1998. Sales in 2001's third quarter were plunging 44%, to $166 million. And Semel was more than two months behind on a promise to unveil his blueprint for fixing the beleaguered Net pioneer. Some Yahoo staffers even began to wonder aloud whether the longtime Warner Brothers executive had what it took to fix the once high-flying Internet company.

Today, Semel's slow-and-steady rebuilding process is showing signs of success. By reducing the number of Yahoo's business units from more than 40 to 6, Semel has cut costs and sharpened focus. The initial results: Yahoo's second-quarter revenues jumped 24%, to $225 million, while it registered its first profit in seven quarters.

Also encouraging: Semel's plan is on pace to glean more than half of Yahoo's sales from something other than advertising by 2004. Net ads accounted for 60% of sales last quarter, down from 77% a year ago. "We're getting that winning spirit back," declares Semel, 59.

BIG DEALS. His approach has been direct: Pound a money-making philosophy into every nook and cranny of his 3,500-person business. This has translated into major deals, such as last December's $436 million acquisition of employment site HotJobs.com, which could add $87 million to this year's sales.

It has meant abandoning properties that had little chance of making money, such as online invitations. It also has shown up in staff changes: Since Semel took over, nearly half of Yahoo's salesforce and 44% of the top management were replaced with seasoned veterans.

"Terry's biggest challenge was to get everyone to realize that Yahoo had to be run as a business," says Bob Daly, former co-chairman of Warner Brothers and the current chairman of the Los Angeles Dodgers baseball team. "He got them straightened out and headed in the right direction."

ONE-TIME BURSTS. Keeping the turnaround on schedule will be difficult, however (see BW, 9/9/02, "Can Yahoo Make 'em Pay?"). For starters, Semel has been able to boost Yahoo's sales and turn a profit, largely thanks to two deals -- the HotJobs acquisition and the paid-search partnership with Overture, which is expected to add more than $100 million to this year's revenues. Each deal provided Yahoo with a one-time burst in growth, which they won't be delivering year after year.

Meanwhile, Yahoo's core business continues to struggle. While overall spending on online advertising crept up 1% in the first half of 2002, according to market researcher CMR, Yahoo's ad sales dropped 14%. At the same time, investors are becoming more cautious about Yahoo's stock even though the company is profitable again. Its shares have dropped 48%, to around $10.50, since Semel took over 16 months ago, although even bearish analysts insist that Yahoo is a much healthier company now.

Semel wasn't expecting an easy ride when he jumped from Hollywood to Silicon Valley. Yet after spending more than two decades hobnobbing with stars such as Clint Eastwood and Julia Roberts while helping build Warner Brothers into an $11 billion entertainment giant, he caught Internet fever.

IRRESISTABLE. Intrigued by the Web's potential as a distribution mechanism for entertainment, he left Warner Brothers in 1999 and briefly dabbled in Internet investments. When pal and Yahoo cofounder Jerry Yang leaned on Semel over lunch in March, 2001, to consider filling the recently vacated CEO position at Yahoo, he couldn't resist. "I like growing a company, watching it get better, and expand," says Semel. "It's exciting and fulfilling."

If Semel can continue to his success of the past 12 months, Yahoo could once again leave investors with that same feeling. By Ben Elgin in Sunnyvale, Calif., with Ronald Grover in Los Angeles


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