Sweeping changes inside Yahoo Inc.’s senior executive ranks failed yesterday to convince investors that the Internet pioneer is back on track, and left unanswered growing speculation that the company could be bought by a major rival.
But Yahoo said the move sets it up for long-term growth and that the takeover rumours are no different from the market chatter that surfaced five years ago when the firm stumbled out of the tech bubble.
Management has recently received public lashings from both investors and within its own ranks, as Google Inc. devours the lion’s share of new Internet advertising dollars. In one example, Brad Garlinghouse, a senior vice-president, circulated an internal memo last month charging that Yahoo had spread resources so thinly that today “we focus on nothing in particular.”
The company is vowing to use resources more effectively, speed up decision making and streamline product development. It said late Tuesday that it will reorganize operations into three units: one responsible for expanding its Internet traffic, another for managing relations with advertisers and publishers, and a third to oversee development of products and technology. Several executives will leave the company as a result of the changes, including chief operating officer Dan Rosensweig.
“The Internet is continuing to grow and evolve at a rapid pace, and we’re reshaping Yahoo to be a leader in this transformation, just as we did successfully five years ago,” Terry Semel, Yahoo’s chairman and chief executive officer, said in a news release.
Investors reacted by driving Yahoo’s share price down 2 per cent yesterday. The shares fell 57 cents (U.S.) to $26.86 on the Nasdaq Stock Market.
The reorganization appears “reactionary and somewhat rushed,” said Rob Sanderson, an analyst with American Technology Research. Important roles were left unfilled in the shakeup, he added, including who will replace Susan Decker as chief financial officer after she assumes responsibility for advertising sales.
“We believe the remaining management team, with their media/finance backgrounds, still represents the wrong approach in an Internet battle that is steeped in technology,” Jeetil Patel, an analyst with Deutsche Bank Securities Inc., wrote in a research report.
Yahoo has been trying to boost profitability by trimming its research and development costs. The move is a critical mistake at a time when rivals are spending aggressively on product innovation, he said.
With almost 420 million registered uses worldwide, Yahoo has the largest collection of traffic on the Web. But it has failed to use its base as effectively as rivals have utilized theirs.
Mr. Sanderson estimates that Google is able to produce on average 66 per cent more revenue for every search using its technology than Yahoo. Yahoo hopes to close that gap with an upgraded search tool called Panama, but the new technology has faced delays and isn’t expected now until next year. Early reviews by advertisers have been positive, said Kerry Munro, general manager of Yahoo Canada Co., the fastest growing unit of the parent company.
The discrepancy has led to talk that Yahoo could find itself a takeover target of Google or even Microsoft Corp. The Redmond, Wash.-based software giant has upgraded its own search tools and is going after a bigger chunk of the online advertising business.
Yahoo’s management shakeup won’t do much to quell the takeover rumours, Mr. Sanderson said. “They are always on the table for any company that has lost a bit of its lustre, and especially so when the goliath in Redmond has been very public about its desire to be bigger in this arena.”
“The reorganization wasn’t meant to provide a bump in the stock price,” Mr. Munro said. “We are setting up the company for long-term growth.”
Internal reaction to the shakeup has been positive, he added. “People here are motivated.”
