Troubled Yahoo to pick new CEO

Tim Koogle will step down from his position as CEO of Yahoo, after the company only broke even in the first quarter where analysts had predicted profits.

          Tim Koogle will step down from his position as chief executive officer of Yahoo, the company announced after the close of New York financial markets Wednesday. Yahoo also said it expects a major shortfall in its earnings, only breaking even in the first quarter where analysts had predicted profits.

          Koogle will retain his position as Yahoo chairman, according to the announcement.

          The consensus earnings estimate for Yahoo's first fiscal quarter was 5 cents per share, down from the 10 cents reported a year ago, according to analysts surveyed by First Call/Thomson Financial. On Wednesday, however, Yahoo said it would only break even in the quarter, which ends March 31, on expected revenue of US$170 million to $180 million.

          In addition, analysts had predicted Yahoo would pull in earnings per share of $0.33 for its full fiscal year; however, the company's goal is now to break even for the full year also, Yahoo officials said during a conference call with press and analysts. One analyst pushed for a more precise earnings prediction for the full year, but Koogle declined, saying the tumultuous state of the North American economic climate made such forecasts too difficult.

          During the call, Koogle blamed the rapidly deteriorating advertising market for the shortfall.

          "All businesses in the United States are facing challenging economic conditions that have weakened further in recent weeks, and as consumer confidence and spending has deteriorated, a broad range of customers have delayed their spending across all media formats until their economic outlook improves," Koogle said, reading from a prepared statement. "As a result, we expect revenues and profits to be reduced most significantly in the marketing services area of our business in the first quarter."

          "This is the second bomb to drop for them," said Doug Christopher, a financial analyst with investment company Crowell, Weedon & Co. "The first bomb hit when they revised earnings in January. Now there's the realization that this is an advertising company. The break-even point is now considered an objective and not a given."

          Lacklustre interest in online advertising spanned both the dot-com and traditional markets, Koogle said. Companies pulled back spending due to uncertainty about the economy for the rest of the year.

          Koogle decided to step down from his position as chief executive officer in order to pave the way for what he called Yahoo's next wave of growth. The company feels it can withstand its present troubles and rebound as the economy picks up. When better times return, Yahoo wants to be poised to attack once again, according to Koogle.

          "I am dedicated to this business," Koogle said. "I want to state that for everyone. I am looking over the horizon and saying that when the economy starts to firm up, what do we need to have in place for growth in the next five to ten years?"

          Christopher sees Koogle's departure as CEO as a natural progression for a company that is still maturing.

          "They want to bring in someone who can get things done," he said. "I think it's healthy. These moves help achieve the critical balance between creativity and viable business approach."

          Yahoo will continue to roll out new services for its more than 185 million consumer users worldwide. The company will also continue to sharpen its focus on services for corporate customers, as it has seen this segment of its business grow rapidly, officials said.

          Fee-based services are the key for Yahoo's future, according to Christopher. The Internet by nature is far more cyclical than people expected, which makes it essential to have a good business base in order to survive. Strong fee-based services could attract corporate clients and help preserve Yahoo's prominent position on the Internet landscape as the economy recovers, according to Christopher.

          "Yahoo does still face challenges, but they have a good product and organize information well," he said. "It is important to remember that the Internet is really still in its infancy. Yahoo will survive."

          Asked whether layoffs or a restructuring might be on the cards, Koogle was somewhat evasive, saying that Yahoo prides itself on watching internal costs very closely and that it would make decisions in line with this philosophy.

          Yahoo halted trading in the stock on the Nasdaq exchange early in the trading day in advance of the earnings warning. Yahoo (YHOO) last traded at $20.97, down $1.41, or 6.3 percent at the trading halt, down about 90 percent from its 52-week high of $205.63.

          Yahoo announced it will embark on a two-year stock repurchase program, spending $500 million to buy back its own stock during that timeframe.

          Analysts had speculated that Yahoo might make such an announcement. "Wall Street is demanding new ways of developing revenue," said Whit Andrews, an analyst from high-tech market research firm International Data (IDC). "Yahoo has been diversifying its revenue sources for years."

          Although Yahoo remains the most visited site on the Internet according to Media Metrix, its breadth may not translate into effective marketing, said Andrews. "Reach is not as important as intelligent targeting."

          Andrews said it was remarkable that the original management team -- Koogle and Jeffrey Mallett, Yahoo president and chief operating officer -- had remained as long as they had. "Both men have demonstrated extraordinary vision, clarity and focus. Look at their competitors … at MSN (Microsoft Network) you see nothing but turmoil," he said. "That’s an extraordinary circumstance."

          Other speculation ranged through the day from a possible takeover bid from a major media company to other resignations among its executive staff.

          The company announced on Thursday that it had adopted a shareholder-rights plan which would inhibit a hostile takeover bid, a possibility now that the company's once high-flying share price has fallen dramatically.

          Yahoo has also lost several top-level managers in the past few weeks from its European and Asian operations. [See "Yahoo Korea chief resigns," Feb. 21.] The company expects to fill these positions shortly.

          Yahoo executives unexpectedly failed to show up at a Merrill Lynch investment conference before trading was halted, according to published reports.

          IDC is a subsidiary of International Data Group Inc., the parent company of IDG News Service.

          Yahoo, in Santa Clara, California, can be reached at +1-408-731-3300 or

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