June 20, 2008 / 1:36 AM / 9 years ago

Yahoo exec exits unnerving, reorganization awaited

LOS ANGELES (Reuters) - Resigning Yahoo Inc managers appear to be voting with their feet on the future of the Web company.

<p>A man runs past the headquarters of Yahoo Inc. in Sunnyvale, California May 5, 2008. REUTERS/Robert Galbraith</p>

Senior executives focused on search, e-mail and services such as photo-sharing, are departing, while the company is preparing a reorganization, according to media reports.

Investors on Friday knocked 3.3 percent off Yahoo’s share price and analysts said key human capital was riding down the elevator and walking out the door -- unnerving those left behind, in what could be a worsening trend.

“It’s going to create a base of instability among the people that have been driving hard for these management teams,” said Colin Gillis of Canaccord Adams. “I think that is the critical part. We are in a difficult environment as it is.”

Yahoo and Google Inc both had a tick up in share of U.S. Web search traffic in May versus April -- at Microsoft Corp’s expense -- but Yahoo was still down from March, Gillis said, pointing to new comScore data showing Google had three times the market share of Yahoo’s 20.4 percent.

TechCrunch and other technology blogs reported on Thursday that three executives were leaving Yahoo, including Brad Garlinghouse, known for a 2006 “Peanut Butter Manifesto” memo that called for a radical overhaul of the company.

Vish Makhijani, general manager of Yahoo’s search business, and Qi Lu, the top engineer for Yahoo’s Panama search marketing platform, also were leaving the company, the reports said.

At the same time, Yahoo President Sue Decker is considering a reorganization that would centralize Yahoo mail, search and homepage divisions into a global product organization, the Wall Street Journal reported.

Yahoo declined to comment on both reports.

The Web company had already signaled it would try to be more like social networking sites Facebook and MySpace, but Gillis said a major shake-up was coming at a poor time.

“While a reorg is needed to de-silo Yahoo, this probably should have happened within the first 100 days,” he said, referring to the return of Jerry Yang as CEO a year ago.

GOOGLE SMILING

Yahoo shares, which closed at $21.99 on Friday, have lost about 15 percent since the company announced a search advertising deal with Google and said all talks with Microsoft on a tie-up have failed.

“There may very well be a reason the executives in question are voting with their feet because they’ve got a sense their talents aren’t necessarily going to be as fully employed at Yahoo going forward than they might be elsewhere,” Dinosaur Securities analyst David Garrity said.

The Google deal is beneficial to Yahoo in the short term as it boosts cash flow, but longer term, it weakens the company’s position in the search ad market as more sponsors could go straight to its larger rival, some analysts say.

“(Google‘s) got the grin of a Cheshire Cat, sitting over there with turmoil at Yahoo, kind of sort of (at) Microsoft, and their foot on the accelerator the whole time,” Cantor Fitzgerald analyst Derek Brown said.

Yahoo rejected a takeover offer from Microsoft worth $47.5 billion, or $33 per share. It also turned down an alternative deal to sell the software maker its search business.

The Sunnyvale, California-based company is now fighting a proxy battle against activist shareholder Carl Icahn, who has sought to replace Chief Executive Jerry Yang and the board. The company’s shareholder meeting is scheduled for August 1.

As for the reorganization, Decker wanted to improve coordination between product teams and global sales groups.

Yahoo said at the beginning of the week that Jeff Weiner, recently executive vice president of the network division, had left to work at venture capital firms.

It was not clear whether the reorganization spurred departures, or the other way around, but few seemed to see the moves as parts of a grand plan.

“Unless all those people knew they were being reorg-ed out or lower or something like that, then it makes you think they are leaving before the reorg,” Brown said.

Additional reporting by Tiffany Wu, Paul Thomasch and Michele Gershberg; Editing by Brian Moss and Braden Reddall

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