Thursday, June 21, 2007

Fragile Internet business

Yahoo's been in the news the last few days. First they had their annual meet, then their CEO got fired/ resigned and then they appointed the co-founder Jerry Yang as the new CEO. There are also rumors of them being merged with Myspace - a part of Rupert Murdoch's newscorp empire. Yahoo last quarter reported revenues of about 1.6bn USD and free cash flows of about 330mn USD. The company enjoys a market cap of about 37bn USD and a P/E ratio of about 58. Google in comparison has a market cap of about 160bn USD and a P/E of about 44.

I think the happenings at Yahoo are an important lesson for CEO's and for followers of business in general. Today smart shareholders know that business is fragile. They expect management teams to be aggressive in responding to change and to have the intellectual honesty to admit when there's a problem. I think Terry Semel was just too slow to respond to the google threat. Shareholders realized that here was someone who was just clueless about how to address the impending threat and they acted swiftly to ensure that the situation did not get out of hand and further value is eroded.

Now the important question:- what will Jerry Yang do to turn this ship around? Personally I feel Yahoo is a great company that somewhere down the line lost its way and probably its soul. It needs to focus on product, product, product.

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