Yahoo! Turns to Yang

Semel's out; Yang and Decker are taking the top spots. Can this duo revive the struggling company?

by Robert Hof

Except for the sudden timing, Yahoo!'s announcement June 18 that Terry Semel is leaving as chief executive was remarkable only for how few people were surprised. After all, the Internet pioneer had turned in one disappointingly slow quarter after another recently. And Yahoo couldn't seem to catch up to today's online hot hands, from search giant Google (GOOG) to social-networking services such as News Corp.'s (NWS) MySpace and upstart Facebook. At Yahoo's annual meeting on June 12 (see BusinessWeek.com, 6/13/07, "Yahoo's Semel Faces the Music"), shareholders very publicly laid the problems squarely at the feet of Semel, slamming his strategy, execution, and $72 million pay package last year.

But Yahoo's choices of co-founder Jerry Yang as new chief executive and veteran executive Susan Decker as president raise as many new questions as they answer. Chief among them: Is this just a temporary move, a safe choice to keep the Yahoo troops on board and investors at bay while Yahoo scrambles to come up with a new strategy? Or, after a year or more of rumors and talks of a Yahoo acquisition, does this just buy the company more time to field purchase offers?

Temporary Tenure?

Close observers aren't sure even Yahoo's board knows the answer. But the betting is that because Yang and Decker have been intimately involved with Semel, who will remain nonexecutive chairman, not much will change in the short term. "I think people that look at this as some kind of watershed event that is going to result in fundamental change at the company are going to be disappointed," says Scott Kessler, an analyst at Standard & Poor's (like BusinessWeek, S&P is owned by the McGraw-Hill Companies (MHP)). "These are two people that I don't see significant change from," says Kessler, who has a hold rating on Yahoo (YHOO) shares.

Kessler's pessimism is understandable. Highly respected within Yahoo, Yang nonetheless hasn't been an executive at Yahoo since its early startup phase. And Decker, despite whispers among Yahoos that her elevation to head of Yahoo's advertising group last December was a sign she's being groomed for the top job, apparently hasn't persuaded the board or investors she's ready yet.

Nonetheless, some observers believe that Yang's tenure as chief executive, while put forward as more than a temporary appointment, may be short-lived. One executive recruiter familiar with Yahoo's management believes the board will launch a search of outside candidates for chief executive, though it's believed that if Decker proves herself, she could still get the nod for the top job at some point.

Investors Are Waiting for Results

All that may explain why investors are only mildly pleased with the shake-up. The company's stock rose about 5% in after-hours trading—a tepid response given that shares are still down 17% from their 52-week high, even after a 3% gain before the announcement. Despite continuing speculation that Yahoo might be for sale, many shareholders are clearly not betting on it.

Nor should they, it appears. April rumors of takeover talks with Microsoft (MSFT) proved groundless. And one former executive with close ties to people at the company has taken recent calls from private equity firms assessing whether Yahoo would be a worthy purchase. However, this person doesn't think they will make bids because Yahoo's properties are so interconnected that it's tough to see how enough sizable units could be sold to unlock value. At a market value of $38 billion, it's an expensive acquisition for any company.

Despite the continuing skepticism by analysts and investors, Yang and Decker signaled during a conference call after the announcement that they will be trying to make some big changes. They mouthed praise of Semel's six-year tenure, including a reorganization last December that they said has speeded decision-making and streamlined operations. But it was hard not to hear an urgent need for change in their comments. Yang emphasized that his key role would be to retain talent in the wake of a steady stream of executive and engineering departures for more than a year. "We want to be a better Yahoo," he said. "It's imperative that we execute with speed, clarity, and discipline."