When Web portal leader Yahoo reports quarterly results
Wednesday, investors will be listening intently to CEO Terry Semel for
evidence that the company is reducing its reliance on advertising
Of course, they've been waiting--somewhat impatiently--for such proof since
Semel took the top job last May.
Wednesday's report will represent the company's performance for the first
full quarter since Semel has been at the helm. Although the rearview-mirror
data is important, analysts will be focusing more on how Semel plans to
detour the company around a treacherous ad market.
One step down that road came Tuesday morning when Yahoo announced the appointment of a new top-level executive. Wenda Harris Millard, a founding member of DoubleClick, has signed on as chief advertising sales officer to oversee the North American sales of the company's advertising and marketing services initiatives and to lead the North American sales organization.
Since he joined Yahoo, Semel, a former Warner Bros. executive, has kept a low profile, making only three public speaking appearances and offering opaque ideas of how he plans to turn the company around over the long term.
Some sources inside the company say Semel's presence has reinvigorated a
stagnant, complacent culture. Others say he has done little to redirect
Yahoo's downward spiral or bring any hint of vision to pull the company out
of its doldrums.
"We're still waiting," said Jeetil Patel, an equity analyst at Deutsche
Banc Alex Brown. Semel "hasn't said too much to the Street in too much
detail. He really has not unveiled a full strategy for 2002 and beyond."
In the hot seat
During the next six months, people may be more demanding of answers. Tapped
as Yahoo's answer for battling a sagging advertising environment and as the
veteran leader to turn the company into a real media conglomerate, Semel's
task remains to articulate a firm strategy.
In previous statements, his plan has been to grow Yahoo's non-advertising
revenues by creating services that its users will pay for. But so far the
company has made tentative steps and still appears to be in the early
stages of reform.
For example, the company recently ran some surveys on its site to gauge customer interest in
services such as broadband access or Web-based word processing and
Whether these services, or others Semel may have up his sleeve, can turn
Yahoo around is unclear. And the lack of clarity has further eroded Yahoo's
share price and market value.
Yahoo shares closed Monday at $10.49, well below their 52-week high of
$88.75. Since Semel's arrival May 1, the shares have tumbled nearly 60
percent. By comparison, the Nasdaq composite index has lost about 27
percent during the same period.
Although Yahoo's share price was affected by the terrorist attacks, most of
the erosion had already taken place by Sept. 11. On Sept. 10, Yahoo shares
closed at $11.74, about 10 percent above their current level.
With a market value around $6 billion, there is speculation that Yahoo
could be primed for an acquisition by a larger media company.
One potential buyer is Vivendi Universal, which is desperately looking for
a way to distribute its creative content, such as music, movies and books,
on the Internet. It has been rumored to be interested in acquiring Yahoo,
and the companies have partnered in distributing Pressplay, a forthcoming
music subscription service that will offer digital songs for a fee.
Yahoo management has insisted it wants to remain independent and work with
media companies on a partnership level, similar to the Pressplay agreement.
The company has already taken financial measures to protect against a
hostile takeover, largely in reaction to its rapidly diminishing market
"While (an acquisition) could be in its strategic playbook, my belief is
that Yahoo is more valuable as independent entity than part of larger media
conglomerate," said Jeffrey Fieler, an equity analyst at Bear Stearns.
Yahoo is expected Wednesday to report earnings of a penny per share, much
less than the 13 cents a share reported a year ago, according to First
Call's consensus estimates.
From the succession of research being published over the past few weeks,
most analysts covering the company expect Yahoo's management to reduce its
year-end expectations. The company stated last quarter that it expects
2001 revenue to reach $700 million to $750 million, down from the
nearly $1.2 billion pegged at the beginning of the year.
Many analysts have already revised their estimates closer to the $700
million mark. Some have dipped even further into the $600 million range.
A Yahoo representative declined to elaborate on Semel's vision for the
company, deferring to Wednesday's report.
"We will talk about what he has achieved on the call," the representative
said in reference to the post-earnings conference call with Wall Street
Although the past six months have been relatively uneventful, the next six
will be crucial for Semel.
After joining the company in May with a mandate to grow its non-advertising
businesses, not much has changed. Despite the anemic advertising market
that has crippled even big media
companies such as Walt Disney and Viacom, there are no indications that
non-advertising initiatives for Yahoo are picking up the slack for lost ad
The areas that Semel has earmarked as potential turnaround points include
creating more Web services that people will pay for, strengthening
content areas--such as sports, finance and entertainment--and boosting
revenues for its enterprise services unit.
Since the last time Yahoo reported earnings, the company has launched a
mixed bag of paid services, including personal ads, more feature-laden home pages and fantasy football on
its sports area.
Semel has also done some shopping. In June, the company acquired Launch Media, an online
music programming company, for a fire-sale price of $12 million. The deal
was viewed as an acquisition of a team of executives that understood the
Although paid services are scattered around the site, it would not be
surprising if Yahoo tries to combine them into a single packaged offering,
similar to the way paid channels are sold on cable TV systems. Still, that
doesn't mean asking people to give up their credit cards will be an easy
feat for Yahoo.
"I would argue that the best hope right now is in aggregating a number of
different services," Jupiter Media Metrix analyst Mark Mooradian said.
"I suspect they will head there eventually."
Two different Californias
Larger questions about Semel still loom in the eyes of Yahoo's observers,
the biggest concern being whether he is the right man to turn around the
Semel's reign will also put to the test whether the Hollywood power broker
can mold a Silicon Valley icon into its own image, or vice versa. Semel,
who still resides in Bel Air but spends his weekdays in Silicon Valley,
could bring maturity into the fledgling media company. But culturally,
attitudes between the two centers of influence have never made the marriage
of entertainment and technology a smooth one.
In his former position as the co-CEO of Warner Bros., Semel was known for
his ability to develop strong relationships with the movers and shakers in
Hollywood. As a manager, he was more adept at delegating talent, overseeing
a team of experts in their respective fields to help the studio as a whole,
rather than being the man with all the answers.
Some semblance of that has begun to form in the Launch acquisition, which
put CEO David Goldberg, who cut his teeth in the recording industry, in
charge of Yahoo's music division. Analysts added they would not be
surprised if Semel guides Yahoo into smaller acquisitions of companies that
are leaders in their respective subject matter or function.
Two sources close to Yahoo, who spoke under the condition of anonymity, said
Semel's management style has been participatory rather than the more common
autocratic trait in Hollywood. One of the executives said Semel has brought
his entertainment industry cachet to the table when doing deals with
traditional-economy companies. Reception to Semel during these deal
meetings has also been warmer than to his predecessor, Timothy Koogle,
according to a source within Yahoo.
"Koogle had his own view and was not helpful on the advertising side," the
source said. "Semel sits in on advertiser and publisher meetings and has
been instrumental in getting them closed."
Semel may carry an air of professionalism with him during the meetings. But
changing attitudes within the company has not been a rapid process. During
the boom years, Yahoo had developed a reputation for its arrogance in
striking deals that had little benefit for content providers and
advertisers. Today, much of this still exists, but largely in contrast to
the growing team of media-experienced executives forming under Semel.
One executive at a major media outlet, who spoke under condition of
anonymity, said Yahoo's attitude of selling advertising rather than
partnering with companies still exists.
"They're still under the impression that people will pay them millions of
dollars for distribution," the executive said. "They come back with, 'We
want you to give us your content and we want to showcase it on Yahoo and
you're going to get brand exposure.' If we didn't care about building a
business online and just wanted to brand, Yahoo would be great at it."
For Semel to win back advertisers and fix Yahoo's reputation as a partner,
rather than a short-term opportunity, will take time. Unfortunately, time
may not be on his side, as Wall Street continues to ask for more clarity in
Yahoo's future and a better sense of what types of change Semel can bring
to the company. Yahoo's core identity has not changed: It still relies
heavily on advertising, and it is still visited by millions looking for
free, unfettered information.
That reality still has not settled well in the stomachs of many analysts
Analysts "are skeptical that he doesn't have the ad background; they're
skeptical that (Semel) hasn't come up with a silver bullet to cut through the
company's problems," said Rob Martin, an equity analyst at Friedman