On Tuesday, troubled Internet search company Yahoo (YHOO: Charts, News, Offers) finally did the inevitable – it fired its much maligned CEO Carol Bartz and investors cheered, bidding the stock up over 6% after hours immediately. Those gains subsided slightly on Wednesday, but the stock was still posting healthy gains by midday, trading at its highs for the month. 62-year old Bartz was apparently taken by surprise, curtly dismissed over the phone by the board of directors. Bartz left a brief memo to Yahoo employees, stating, “I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s Chairman of the Board. It has been my pleasure to work with all of you and I wish you only the best going forward.”
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However, Bartz should have realized that the writing was on the wall. The Yahoo board had convened for a year over the company’s miserable performance – and concluded that the only way forward was a change at the top. CFO Tim Morse was named interim CEO while the company searches for a new permanent CEO.
At this stage of the game, however, Yahoo needs a visionary on par with Steve Jobs to save its sinking ship. The company has been marginalized in Asia by its joint venture Yahoo Japan, which dumped the flagging search engine in favor of Google, and by its own subsidiary Chinese search service Alibaba, which spun off its cash cow Alipay (the Chinese equivalent of PayPal) to keep it out of Yahoo’s hands. The company has also been decimated by Google (GOOG: Charts, News, Offers) in most major markets across the world. Amid all of this chaos, Yahoo has changed its coach in the middle of the game. Can anyone possibly take over this company and save it from impending doom?
The Board of Directors is expected to hire an executive-search firm to put compile a strategic review evaluating the possibilities of Yahoo’s growth and the viability of a sale to the highest bidder. To complicate this further, Yahoo is still attempting to purchase video site Hulu, which is currently owned by Disney (DIS: Charts, News, Offers), News Corp’s (NWS: Charts, News, Offers) Fox and Comcast’s (CMCSA: Charts, News, Offers) NBC Universal. This costly attempt at growth was seen by most investors as a desperate last grasp at straws by Bartz, but is still being pursued by the Board of Directors. This should raise a red flag for shrewd investors – has anything really changed strategically by ousting Bartz, or was she merely a scapegoat for the company’s failures?
Yahoo’s fall from grace is epic and a reminder of how fast dot-com stocks fell in the late 1990s. The company was one of the sole survivors of the dot-com crash, despite seeing its shares crash from a high of $108 to a low near $4 between 1999 and 2002. The important thing was that Yahoo survived, and outlasted its dead search engine brethren – such as Excite, HotBot, Lycos, Infoseek and Altavista, and shares healthily rebounded – this time with more solid fundamental scaffolding – to the low $40s by the end of 2005. At the time, Yahoo had emerged as the number one search engine and portal on the web, and its name was synonymous with Internet search. However, there was one early search contender Yahoo neglected – Google, which began receiving large institutional funding in 1999 – which arrived in 2004 with the largest Internet IPO in history. Google’s market share steadily increased, and in seven short years the company evolved into this decade’s Microsoft (MSFT: Charts, News, Offers), with established operations in search, advertising, mobile operating systems, web browsers and cloud computing. Yahoo, lacking all of these additional business segments, was crushed at kicked into the corner, where it remained for most of Bartz’s 2 year tenure.
During Bartz’s tenure, the average time spent by U.S. visitors on Yahoo sites dropped 33% according to Comscore, and the share price has remained flat, despite a 60% rise in the Nasdaq. Bartz lost control of Yahoo’s Asian assets, considered by most investors as the company’s last source of growth. Bartz sold off Yahoo’s side businesses to slim down the company, but high-level executives, lacking confidence in her initiatives, abandoned ship in droves. Executives berated her dismissive attitude toward the threat of Facebook, which Google has been quick to counter with Google+. Bartz foolishly mocked Facebook on CNBC in March 2010 by asking, “Remind me, what’s their revenue?” Over time, Bartz’s brash attitude and ambiguous statements regarding Yahoo’s future alienated many employees and shareholders. Other board members were frustrated that Bartz failed to grasp the innards of Yahoo’s business. At a meeting with product managers in 2010, a manager claimed that Bartz “didn’t realize the majority of Yahoo’s space for graphical ads resided in its communications services, namely, Yahoo Mail.”
Yahoo is now back to square one – without a firm leader or a potential buyer. Most Yahoo shareholders still dream of returning to February 2008, when Microsoft offered to buy the company for $33 per share. With no leader, no guarantee of future growth, and no prospective buyers, can Yahoo last the rest of the year intact?
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
