If PayPal head Scott Thompson can turn Yahoo (NASDAQ: YHOO ) around, he will
earn a spot among the greatest CEOs of his era. The challenges facing the
Sunnyvale, Calif., firm are that formidable. Thompson, who is replacing the
fired Carol Bartz , needs to bring a 20th century company into the 21st century
and fast. He did a good job at eBay 's (NASDAQ: EBAY ) payments subsidiary,
boosting users to more than 100 million and helping it generate as much as $13
billion by 2013. Yahoo, a diverse Internet portal, is a much different company,
and Thompson's learning curve will be short. Like AOL (NYSE: AOL ), Yahoo
makes no sense in today's media environment. The days of the portal providing
everything from email to photo sharing to international news to music
programming have come and gone. Yahoo now must decide what services to keep,
which ones to sell and which ones to shut down. The stakes couldn't be higher.
Yahoo lost its ranking as the most visited website to Facebook in 2010 and now
is losing advertising dollars to Mark Zuckerbergs company. Data from Google 's
(NASDAQ: GOOG ) DoubleClick site shows the social network had 880 million unique
visitors, followed by Google's YouTube with 800 million and Yahoo at a distant
third with 590 million. Yahoo, whose shares have plunged more than 37% during
the past five years, continues to struggle. Data from eMarketer shows that
Yahoo's share of display ads was about 13% last year, down from 14% in 2010.
Meanwhile, Google and Facebook's shares have increased. Another big challenge
for Thompson is Yahoo's international business. Some investors such as Third
Point LLC have argued correctly that these assets, such as the 40% stake in
China's Alibaba Group, are undervalued. Yahoo estimated the value of the
investment in the Chinese e-commerce company at $14 billion. That problem might
resolve itself. Alibaba CEO Jack Ma reportedly raised $4 billion to make a deal
happen to extricate himself from Yahoo's control. Given that China is the
world's largest Internet market, Yahoo will try to continue to have a presence
despite the governments heavy hand. Another big decision for Thompson is the
question of original content. For years, the company tried to assure media
companies that it was their friend and that it had no intentions of competing
against them. Eventually, it began to change directions because advertisers will
pay more money to support information not available elsewhere. Yahoo now
publishes lots of original content some of it, in areas such as sports and
finance, is quite good. Like Tim Armstrong, his counterpart at AOL, Thompson
will have to convince his shareholders that the investment is worth it. That
will be difficult. During the third quarter, display advertising revenue
excluding traffic acquisition costs (TAC) was $449 million , little changed from
a year earlier. The overall results were dismal. Net income plunged 26% to $293
million, or 23 cents per share. Revenue excluding TAC the metric used by Wall
Street fell 5% to $1.12 billion. The results surpassed Wall Street's
admittedly already low expectations because Yahoo took market share from
traditional media outlets such as newspapers. That means Thompson will have to
find partners to justify Yahoo's original reporting. Last year, Yahoo formed
an alliance with Walt Disney 's (NYSE: DIS ) ABC News to share original videos
a big thing on the Internet and reporting resources. A good start, but more
needs to be done. Yahoo Sports, which last year scored some impressive scoops
including scandals involving the University of Miami and Ohio State University
football teams shouldn't have trouble finding another media company to share
its costs. The same holds true for Yahoo Finance, its popular business site.
This is the year where Yahoo needs to make itself relevant to today's Internet
users. Otherwise, it will be another wreck moved to the shoulder of the
information superhighway. As of this writing, Jonathan Berr did not hold a
position in any of the aforementioned stocks.
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