Yahoo's Terry Semel got Googled!

Posted Jun 19th 2007 12:00PM by Georges Yared
Filed under: Management, Competitive Strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

2001 was a long, long time ago. In the ever-evolving world of technology, six years can be measured in dog-years: one dog year equals seven human years. Terry Semel rode in to Yahoo! (NASDAQ: YHOO) as the savior, the professional manager who would move this absolutely cool company to the next level. The space was evolving and revolving in a huge way. Nobody could even put a bona-fide growth rate on the internet search/ marketing/advertising/communication field. Semel thought he had entered a marathon.

In 2001, Google (NASDAQ: GOOG) was only three years old, as the company was founded in 1998. The secrecy surrounding Google was legendary, yet weird. Google was formidable, but it was also private. Numbers were never confirmed, but people in the know whispered Google was catching Yahoo and knocking it from its premier position. Google was gathering headlines and believers while Yahoo! was reporting good, not great, or consistent quarterly numbers. The technology media and its close-followers knew Google was catching Yahoo!, it was only a matter of time.

The world realized in 2004 that Google was also running a marathon, but with a sprinter's speed. Google completed its initial public offering in August 2004 and was crowned the winner: game, set and match. Immediately, the market propelled Google to a market capitalization that has surpassed Yahoo!'s. As of this writing, Yahoo! is a faint figure in Google's rear view mirror. Google is worth $160 billion while Yahoo! is a respectable $37 billion.

Under Terry Semel's tenure, Yahoo! did in fact quadruple its market value, albeit from a tough, nuclear-winter technology market-base of 2000-2003. What Semel did was communicate in a poor and inconsistent manner with Wall Street and its analysts. Semel seemed unsure of Yahoo!'s key mission and Yahoo!'s quarterly numbers became a Wall Street joke, like a crap-shoot. The Street will forgive one or two inconsistent quarters, but beyond that, the Bataan Death March begins. It began for Semel as early as 2003, and he has never recovered. The hyper-growth of the search engine industry salvaged Yahoo! for a while, as the rising tide lifted all boats. Still, Yahoo!'s stock has underperformed while Terry Semel's compensation has overperformed ... no longer a good combination.

Yahoo! hired investment banker Blake Jorgensen as its CFO back in mid-May, and today "elevated" Susan Decker to the role of president, but not to the coveted CEO title. Co-founder Jerry Yang is taking on this title with the infamous "interim" attached to it. So what is going on and who's on first base?

Investors are leery of "founders" coming back to take on the CEO reins: It smells of several bad decisions leading up to the "founder is back." Blake Jorgensen has an investment banking background, which could signal that Yahoo is getting prepped for a merger or being acquired. Sure, the easy money bet is to say Micrsoft (NASDAQ: MSFT) is the natural buyer. Microsoft actually needs Yahoo!, but at what price? Microsoft may have seen that it did not like what was inside the envelope and may just be waiting in the wings to pay the right price. It is sitting in the catbird seat on this one.

Yahoo!'s stock was up in the after market about 4.5% after the initial announcement. Investors have voted quickly and decisively about Terry Semel's departure. That being out of the way, the fun will be watching if the deck chairs get re-arranged again soon or if Yahoo! has the right team to move it forward. I am going to bet on the deck chairs getting re-arranged again and again before this is over.

Georges Yared is the CIO of Yared Investment Research.