Yahoo! Makes A Bold Move Bringing In New Leadership

By Stephen D. Simpson, CFA | July 17, 2012 AAA

It was no secret that Yahoo! (Nasdaq:YHOO) was looking for a new CEO, but much of the news in recent weeks has centered around who didn't want the job. Consequently, sentiment was building that the one-time Internet pioneer was going to keep interim CEO Levinsohn and remove the "interim" from his title. However, Yahoo! wouldn't be Yahoo! without throwing a curveball, and the company threw what looks like a doozy - hiring Marissa Mayer from Google (Nasdaq:GOOG).

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Meet the New Boss
Ms. Meyer comes to the job with a very strong pedigree. An engineer educated at Stanford, Mayer was one of Google's earliest employees (supposedly the 20th) and managed key business projects like search and mail while at Google. While she was most recently in charge of Location and Local Services (maps, location-based offerings and local search/info), she seems to be broadly credited by many analysts as playing a key role in the "look and feel" of the Google user experience.

SEE: Top Qualities Of An Effective CEO

A Solid, but Surprising, Hire
Yahoo!'s board is making some interesting and bold statements with this pick. I wish that the news of a major tech company hiring a woman as CEO wasn't still news, but so it is and no less so because Mayer is reportedly pregnant (and intends to take a fairly minimal maternity leave).

What is more interesting to me is that Yahoo! is picking someone with no CEO experience to run a company that badly needs restructuring and refurbishment to stay relevant. It's hardly news that Yahoo! has fallen far behind Google in many respects, and is much more like AOL (NYSE:AOL) than Yelp (NYSE:YELP) or Facebook (Nasdaq:FB). That's a steep hill to climb for somebody's first shot at the big chair.

SEE: 6 Candidates For The Next Great Tech CEO

It's also interesting in the respect that this would appear to be a "growth hire." I don't believe you hire an engineer from a dynamic rival if your corporate goal is to simply hold on to what you have and farm free cash flow (which some have suggested should be Yahoo!'s direction). Instead, this would look to be a more aggressive hire of a person who could not only refocus attention on Yahoo!'s user experience, but also attract skilled engineers and developers back to Yahoo!.

Nothing's Ever Over on the Internet
For all of those who say that Yahoo! is doomed, I'm reminded of a funny quote from the movie "Animal House" - "Was it over when the Germans bombed Pearl Harbor?" I don't think Yahoo! is going to close the gap on Google in search (at least not anytime soon), but Google has ably demonstrated what an "Internet company" can become. Moreover, it seems like "local" is now the hot space for Internet companies (including Google and Microsoft's (Nasdaq:MSFT) online efforts), and Mayer should be as in tune with that theme as anybody Yahoo! could have hired.

SEE: 5 Outrageous CEO Spending Abuses And Perks

The Bottom Line
Yahoo! is still a risky call as a turnaround stock. The stock has gone nowhere in about three years, the valuation is not really washed out and analysts are looking for minimal growth. On the flip side, it's a profitable company that produces ample free cash flow, and one that still has brand value. I'd need to hear more on Mayer's plan to rejuvenate the company before putting down my own money, but at least Yahoo! is once again worth talking about.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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