Yahoo Investors Put CEO Yang in the Hot Seat

NEW YORK -- Yahoo Inc. chief Jerry Yang was found wanting Wednesday by investors who said the company needed to devise a plan to combat weaker advertising growth more quickly than in the 100 days promised by management.

Some analysts even said that Yang, a Yahoo founder who took the CEO role in June, would soon face pressure to consider a possible sale if the company's performance did not improve.

Yahoo shares fell more than 5 percent after it reported a lower quarterly profit and cut its revenue expectations for the year Tuesday, citing competition for its biggest advertisers from other sites offering graphical display ads.

Yang pledged to map a new strategy in the next 100 days. But some analysts said he had given himself too long of a grace period, following more than a year of company missteps.

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"A 100-day strategic and operational review?" Sanford Bernstein analyst Jeffrey Lindsay wrote in a research note. "We would think this excessive even for a new CEO unfamiliar with the company and the industry."

In the note, titled "The Descent into Mediocrity Drags On," Lindsay wrote: "We were left wondering how exactly Yahoo was going to close the performance gap with Google and reestablish profitable future growth at least equal to the rest of the Internet."

Lindsay cut his earnings estimates for Yahoo and lowered his share-price target to $25 from $29.

The shares were down 5 percent at $26.15 by midday on the Nasdaq after falling as low as $26.07 earlier in the session.

Yahoo's results have disappointed investors in five of the last six quarters, prompting the company's shares to drop more than 30 percent since the start of 2006.

PARTNERS, OR MERGER?

Yahoo's second-quarter net income fell to $161 million from $164 million a year ago. It forecast 2007 revenue, excluding payments to ad affiliates, of $4.89 billion to $5.19 billion, below its previous view and analysts' average forecast.

Management must improve performance in line with expectations in the next 12 to 18 months, otherwise the chances for a sale of the company increase significantly, said Jefferies & Company analyst Youssef Squali.

Yahoo has frequently been the target of merger speculation. News Corp.'s Rupert Murdoch said recently he would consider swapping his company's social network site MySpace for a 25 percent stake in Yahoo.

But Yang gave no indication Tuesday that the company would consider options beyond remaining independent.

He said that Yahoo's priorities include providing advertisers with greater insight into its customers' interests, creating a more open technology platform for Web users and arranging more partnerships such as its tie-ups with U.S. newspapers and eBay Inc.

Wall Street seeks more details on how Yahoo will compete with Google's dominance of Web search and its ambitions to pursue marketing budgets for graphical display advertising.

Yahoo's view on display advertising, whose growth rate has dropped from a year ago to the low to mid-teen percentage range, is particularly stinging as the company had long been one of the strongest players in that sector.

President Susan Decker acknowledged the company had been slow to capitalize on new forms of demand in the display market. She said it also faced pressure from popular Internet social networks like MySpace that offer lower ad rates.

RBC Capital Markets analyst Jordan Rohan said he was surprised at Yahoo's difficulty in accelerating growth and expected large institutional investors to soon seek a more active role in the company's future.

While Yang and Decker seem committed to solving the company's problems, Rohan said that possible combinations with the likes of News Corp., Microsoft Corp., AT&T Inc. or Time Warner Inc.'s AOL would be a quicker way to satisfy shareholders.

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