Internet

Yahoo! CEO Carol Bartz Rates Her First Year a B-Minus


By Brian Womack

(Bloomberg) — Carol Bartz gives herself a B-minus in her first year as chief executive officer of Yahoo! Inc. (YHOO), saying she could have moved faster to reorganize the company and strike a Web-search agreement with Microsoft Corp. (MSFT)

"It was a little tougher internally than I think I had anticipated," Bartz, 61, said in an interview at Yahoo's headquarters in Sunnyvale, California. "I did move fast, but this is a big job."

Bartz, who marks her one-year anniversary as CEO next week, is striving to keep Yahoo's 15-year-old site relevant in an era of Twitter and Facebook. Yahoo's sales have fallen for four straight quarters, and its stock trailed the Nasdaq Composite Index in the past year. Bartz expects Yahoo's sales and profit to grow in 2010 as it makes acquisitions and improves products.

"Carol was dealt a pretty tough hand," said Ryan Jacob, portfolio manager of the Los Angeles-based Jacob Internet Fund, which holds about 100,000 Yahoo shares. "A lot of what she's put in place—we'll know in the next year or two really whether it pays off. I think at this point it's still a bit up in the air."

After becoming CEO, Bartz cut her staff by 5 percent, shuttered underperforming businesses such as the GeoCities Web-hosting site and installed her own management team. In July, she struck a deal with Microsoft Corp. to collaborate in Web search and advertising, letting it cut capital spending by a projected $200 million.

'Tough Hand'The company also has been hiring people for sales and engineering, tapping into the savings generated by its cost-cutting efforts.

"A very good company kind of got buried," Bartz said. "It is coming out."

The CEO of Autodesk Inc. (ADSK) from 1992 to 2006, Bartz took the reins at Yahoo from the company's co-founder Jerry Yang. He rankled investors in 2008 by spurning a $47.5 billion takeover attempt by Microsoft. Yang then pursued an ad partnership with Mountain View, California-based Google Inc. (GOOG) That deal fell apart in late 2008 after the U.S. government threatened to challenge the agreement.

By the time Bartz took over, Microsoft said it was no longer interested in an acquisition, preferring a partnership instead. She worked out that deal about six months after her arrival. Under the 10-year agreement, aimed at challenging Google, Yahoo will use Microsoft's Bing search engine on its Web sites.

Bing PartnershipYahoo will sell ads that appear next to Internet-search results, sharing the revenue with Microsoft. Bartz expects the deal to get regulatory approval early this year.

The Microsoft deal will help boost operating margins and let Yahoo focus on other services, such as the home page and e-mail, Jacob said. Yahoo expects to achieve profit margins of 15 percent to 20 percent by 2012, up from about 6 percent in 2009.

Yahoo fell 47 cents to $16.70 yesterday in Nasdaq Stock Market trading. The shares climbed 38 percent in 2009, a year in which Google's stock more than doubled and the Nasdaq Composite Index advanced 44 percent. Yahoo's stock tumbled 48 percent in 2008, when the Microsoft acquisition talks fizzled.

Investors have held back from buying Yahoo shares because of the sales slump, said Martin Pyykkonen, an analyst with Janco Partners Inc. in Greenwood Village, Colorado. He rates the stock a hold. Third-quarter revenue fell 12 percent to $1.58 billion from the year-earlier period.

Bartz said that while the stock price indicates the company has been in the "penalty box," the share price is fair. The sales declines aren't surprising, given the recession and a broader slowdown in advertising, she said.

No Apology"We came out of one of the worst climates ever," Bartz said. "And if you look at growth of Fortune 500 companies, only being down 12 or 15 percent is damn good. I'm not going to apologize for our growth."

Yahoo already is benefiting from the rebounding economy, which is encouraging companies to buy online ads, said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. He said Bartz eventually should be able to get sales growth up to 10 percent annually.

"We believe in Carol Bartz and believe that she is going to get the revenue growth to a point that's acceptable," Munster said.

Bartz said she plans to do more acquisitions this year, probably of less than $1 billion apiece. Potential targets include overseas companies and data-analytics businesses that help advertisers assess their results, she said.

More Focused"Last year people talked about, 'Oh, Yahoo is trying to get smaller,'" she said. "We were never trying to get smaller. We were just trying to get more focused."

Bartz said the company continues to improve its products, such as its home page and e-mail service, though she didn't give specifics. Last year, Yahoo unveiled a new version of the home page, the site's first major upgrade since 2006.

The home page is the entry point to dozens of services, including Yahoo Finance and the Flickr photo site. The new design lets users easily access other companies' sites, such as Facebook and Twitter, from the page.

The role of Web portals is shrinking, because more users are moving to social-networking sites, said Sameet Sinha, an analyst with JMP Securities LLC in San Francisco. He gives Bartz a B-minus grade as well and recommends buying the stock.

"Aggregation worked in the early stages of the Internet, when people were less sophisticated," said Sinha, who doesn't own Yahoo shares personally.

The fact that the company still serves up billions of pages to users daily shows that Yahoo plays an important role on the Internet, Bartz said.

"You're just going to see Yahoo bloom more," she said.


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