by MICHAEL LIEDTKE
May 25, 2011
SAN FRANCISCO – Yahoo Inc. CEO Carol Bartz found herself in a familiar position Wednesday: assuring stock market analysts that she will clean up a mess damaging the long-slumping Internet company's market value.
The latest challenge to confront Bartz in her nearly 2 1/2 year-tenure emerged two weeks ago. That's when Yahoo jarred investors by informing them of an abrupt change affecting the value of its 43 percent stake in Alibaba Group, one of the leaders in China's rapidly growing Internet market.
Alibaba had spun off a potential jewel — its online payment service Alipay — into a separate company controlled by its CEO, Jack Ma, without giving Yahoo anything in return.
Yahoo's stock price has plunged by 13 percent since the May 10 revelation, leaving Bartz little choice but to place the issue at the top of the agenda for a meeting that Yahoo had scheduled to provide an update on its turnaround strategy. The Associated Press monitored the San Jose, Calif. meeting through a webcast because Yahoo wouldn't allow reporters to attend.
Although she provided few specifics, Bartz spent most of the first hour trying to reassure analysts that Yahoo will be "appropriately compensated" for the loss of Alipay from its investment portfolio.
Bartz made her points flanked by Yahoo's chief financial officer, Tim Morse, and company co-founder, Jerry Yang, who also is a member of Alibaba's board of directors. Both men flew to Asia last week to discuss the Alipay matter with Alibaba's major shareholders, who include Ma and Japan's Softbank Corp. Bartz said all the key shareholders have committed to negotiating a fair payment for the Alipay spinoff and preserving the value of another Alibaba asset, online auction site Taobao.
"This is a very complex situation," Bartz said. "We have approached this thoughtfully and methodically. We think this is the right path to protect shareholder interests."
Bartz wouldn't predict when the Alipay issue would be resolved.
Yang, who spent 19 months as Yahoo's CEO before being replaced by Bartz in January 2009, said the Alipay spin-off was necessary to ensure Chinese regulators license the service. The licensing wouldn't have been possible if Alipay wasn't wholly owned by Chinese citizens, Yang said.
Yahoo said Alibaba notified it about the change in Alipay's ownership on March 31. None of the executives explained why Yahoo waited nearly six weeks to disclose it.
"We believe our disclosure was timely and appropriate," Bartz said.
Later in the day, Morse said Yahoo is still exploring ways to enable shareholders to get their money out of another closely watched Asia investment, Yahoo Japan Corp. As has been the case since last year, Yahoo is still considering spinning off its 35 percent stake in Yahoo Japan or transferring the holdings into a tracking stock.
"We are pursuing some attractive alternatives, but it's not a quick and easy process," Morse said of the Yahoo Japan situation.
Investors seemed largely unmoved by what they heard Wednesday. Yahoo shares added a penny to close at $16.15.
Bartz, 62, and her top lieutenants spent most the meeting trying to show Yahoo is finally headed in the right direction after years of misguided decisions and aimless execution.
The bumbling has undercut Yahoo's revenue and stock price at a time when other major Internet companies like Google Inc., Amazon.com Inc. and Facebook are thriving.
"We have rolled up our sleeves and we have done the hard work that Yahoo needed to do to be positioned as a premier digital media company," Bartz said Wednesday.
Yahoo remains one of the Internet's top destinations with more than 600 million users, an audience that Bartz boasted would be the envy of once-powerful media barons such as newspaper publisher William Randolph Hearst.
But Yahoo's popularity hasn't carried over to the stock market, largely because the company has been stuck in a financial malaise for most of the past five years. During that time, Yahoo has lost nearly half of its market value under three different CEOs — Bartz, Yang and former movie studio boss Terry Semel.
Although Bartz has been able to boost Yahoo's earnings by trimming about $2.1 billion in costs, the company isn't keeping pace with the growth in the Internet ad market that generates most of its revenue.
Yahoo's net revenue — a number that reflects the money that Yahoo keeps after paying ad commissions — has dropped from the previous year in all nine quarters completed so far during Bartz's reign.
Part of the trouble stems from a disappointing start to Yahoo's Internet search partnership with Microsoft Corp. To save money, Yahoo is relying on Microsoft's technology to power the search results and accompanying ads on its website.
But Microsoft so far hasn't delivered the search advertising revenue that Yahoo envisioned, prompting the companies to delay expanding the 10-year partnership outside of the U.S. and Canada until the financial performance improves. Bartz is confident that will happen by early next year.
If Yahoo doesn't rebound soon, BGC Financial analyst Colin Gillis said he thinks Bartz might be replaced before her four-year contract expires in January 2013. He said he believes Yahoo brought in a potential successor when it named David Kenny to its board last month.
Kenny, 49, is an online advertising veteran and currently president of Internet networking services provider Akamai Technologies Inc.
Bartz has the "unequivocal support" of Yahoo's board and any speculation about her job being in jeopardy is false, according to a person familiar with the board's thinking. The person asked not to be identified because the board has chosen not to publicly discuss its feelings about Bartz's performance.
Bartz still hasn't been able to reach the goals that the board set for Yahoo's stock price when she was hired. Her contract awarded her 5 million stock options that won't vest unless Yahoo shares close at average prices ranging from $17.60 to $35.19 for at least 20 consecutive days.
It looked like Yahoo's stock might hit the first vesting threshold until the disclosure about the Alipay spinoff wiped out roughly $3 billion in shareholder wealth in two weeks.
