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Yahoo Struggles: Time For Investors To "Search" Elsewhere?

Monday, 28 Jan 2008 | 11:50 AM ET
Yahoo
CNBC.com
Yahoo

Yahoo is a mess. A simple, but stunning statement when you're talking about the web's most popular destination. Read that again--the web's most popular destination.

More people visit Yahoo on a monthly basis than any other web site. You'd think with that much traffic, with that much interest, with that much global brand recognition that this company could figure out some successful strategy. And that's the problem: traffic is good, but it's what visitors do on the site once they're there that doesn't seem to be working for the company. That's just tragic. And shocking. Talk about a squandered opportunity.

Yahoo will report earnings Tuesday and the Street is looking for 11 cents a share on $1.4 billion in revenue. Profitable, yes. But not nearly the numbers its rival Google is enjoying. Yahoo's stumbling cost CEO Terry Semel his job last quarter; replaced by co-founder Jerry Yang who came into the C-suite amid a glow of optimism and promise that he would take the necessary steps to get this company back on track. He promised change after his first 100 days, though I'm not clear why someone already so close to the company needed that 100 days in the first place. He promised no sacred cows.

Since then, nothing. Squabbling among the top ranks that Yahoo continues to move in a thousand different directions all at once; frustration over a lack of true leadership; that the company continues to squander enormous opportunity, even as Google continues to throw anything and everything against the wall--like the spread spectrum wireless auction as an example--to see what sticks.

Here in the Bay Area, home to NFL franchises like the San Francisco 49ers and the Oakland Raiders, Yahoo is fitting right in. And that's not a good thing.

So here we are again on the eve of another earnings report where investors--and employees--are anxiously awaiting word of what could be a massive reorganization. But then, last week, rumors that the layoffs would be in the hundreds instead of the thousands that analysts say are necessary to get the company's costs back in line. And heaven help this company if no sweeping workforce reduction is announced. This stock will spiral back to the 4-year-low it traded at last week. Ugh.

Yahoo faces enormous headwinds, not the least of which is that pesky competitor Google eating up all the available business in Search, not to mention Microsoft now gaining on Yahoo in that sector; but also: The material broadband partnership with AT&T comes up for renewal or cancellation in the next few months. The elimination of that partnership could pose a big problem for Yahoo; macro-economic concerns still weigh on Yahoo's display advertising business; a new CEO, a new CFO, no real clarity of leadership from president Sue Decker. All of these could contribute to the company dampening expectations for the coming quarters so it's likely investors ought to expect conservative guidance, at best.

On the positive side of the coin, according to Citigroup's Mark Mahaney, Yahoo's Search business has improved thanks to the Panama monetization software that's finally paying dividends. He also says the wildcard on the horizon is to outsource Search to Google, something that's been speculated about for months, and something Mahaney calls potentially "highly accretive deal to Yahoo shareholders." He also says there's still the possibility that Yahoo will be acquired by another company, something I've written about for months.

But short of the Draconian measures needed to window-dress this company, you gotta wonder who would step up to buy it. Eyeballs are one thing; all these headaches are quite another.

Tim Koogle, the company's first CEO, recently told me Yahoo lost its innovative edge. "In the long run, companies, especially technology enabled companies compete almost solely when times are good, around innovation. You don't invent it, someone else will, I guarantee it. And if you don't do it quick enough somebody will do it quicker than you, and they will steal the show. So it's all about innovation...It's just my opinion, that they lost that rate of innovation there, and got a little bit wrapped around the action with bureaucracy and got way slow. And we're seeing that now."

In case you're wondering, Koogle wouldn't dismiss a return to Yahoo; but he's not chomping at the bit to come back either.

Questions? Comments? TechCheck@cnbc.com

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