Reaction to Yahoo reorg decidedly mixed
Wall Street has spoken on the Yahoo reorganization--and it's not sure what to make of it yet. Some analysts say the moves don't address Yahoo's technology gap against rivals while others were more optimistic. All agree that Yahoo can't allow the management changes to be a distraction.
Yahoo reshuffled its management ranks last night and revamped units in an effort to be more nimble. While folks will tie the reorg to Brad Garlinghouse's Peanut Butter Manifesto this move was really necessitated by delays in Project Panama, which is supposed to close the paid search gap with Google, and the requirement to be more agile.
The common refrain on Wall Street, which was hankering for changes in Yahoo's management ranks, was decidedly mixed.
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Among the comments culled from research notes:
--Citigroup analyst Mark Mahaney sees the reorg as a "mixed development." "It is recognition of the organizational and operational challenges YHOO has faced over the prior 12 months plus, best exemplified by the delays in Project Panama, the key search monetization project. And it is very likely a necessary step that carries the potential for improved operational efficiencies at the company. On Panama, we don't believe the re-org signals an additional delay."
--Thomas Weisel Partners analyst Christa Sober Quarles sees more turnover ahead. "As a part of this realignment, we expect management changes below the C-level ranks to continue. Specifically, the head of Yahoo’s media group, Lloyd Braun, is also stepping down as are some other higher-profile Overture managers." Quarles says in 2007 Yahoo will have to get Panama on track, develop partnerships, address display advertising growth and monetize excess inventory.
--Deutsche Bank analyst Jeetil Patel says he's not convinced the changes will improve Yahoo's standing against Google. "We believe the remaining management team, with their media/finance backgrounds, still represents the wrong approach in an internet battle that is steeped in technology. We believe Yahoo’s myopic focus on protecting its margins has come at the expense of technology investments, as evidenced by 2 consecutive quarters of R&D spending declines (on par with Amazon). In contrast, its competitors continue to aggressively spend on R&D/product innovation as a means of user growth whereas Yahoo! has relied upon media/ads. Again, the battle for web supremacy lies in the product/tech offering, not ads. The reorg unfortunately does not address the existing philosophy of cautious spending/investing & margin preservation (at the expense of long term growth), especially when the competition is willing to make those tradeoffs. This realignment could create uncertainty among employees and clients in the near term. But we believe Yahoo can ill afford any organizational bottlenecks at this time as it rolls out Panama. Further delays will simply lead to Yahoo losing even more competitive ground."
--Marianne Wolk, an analyst at Susquehanna Financial Group, says Yahoo's "reorganization is the result of several years of underperformance. We are less sanguine as to what the management shift says about the near-term outlook, which is already expected to be quite poor. We also attribute the announced changes, which place Sue Decker in a primary operating role - and points to her possible ascension to CEO - to a long running political struggle within the company."
--Brian Pitz, an analyst at Bank of America Securities, says "Yahoo is increasingly trying to morph into a clearinghouse for online advertising, akin to Google's AdSense. We note partnerships with eBay, a newspaper consortium, and Right Media as key to this strategy. More importantly, this highlights Panama's importance to its strategy. We believe the re-org comes at a critical time for Yahoo with the impending launch of Panama. We note the new CFO and audience group head roles are yet to be announced, and are surprised about Sue Decker's new role in sales considering her background in finance and strategy."