The New Regime At Yahoo

Yahoo co-founder and occassional executive Jerry Yang left the board of directors yesterday, as part of what seems to be a larger shakeout of the infighting-wracked company. The new CEO, Scott Thompson, comes to the company from running eBay’s PayPal unit, and lacks experience in the media and advertising industries that Yahoo has repositioned itself as a player in after losing its once-leading position as a web search engine.

I have no particular insight into Yahoo’s business, but I do think it helps illustrate why a private equity industry exists. Yahoo is in a lot of trouble, with revenue and share prices declining. But lurking amidst that trouble is a lot of potential value. It has a large stake in Alibaba and other Asian interests. It has a lot of traffic. Its 13.1 percent share of display advertising in the US represents a declining figure, but it’s still a large one. In the third quarter, Yahoo’s sales decline 4.6 percent, which is bad, but they declined to $1.07 billion which is still a lot of money. These assets can be deployed for better or for worse. It’s possible that the existing board with their new CEO will turn things around and unlock some of this value, but it’s also possible that the company would do better with outsiders coming in more forcefully. Either way, when a firm that’s big and has billions of dollars in annual revenues and expenditures, but is also flailing and sinking, there’s clearly a role for some kind of unsentimental re-examination of its business activities. That could mean reviving the company, but it could also mean largely dismembering it. It’s perfectly plausible that a company that’s seen so many changes of leadership and direction is currently less than the sum of its parts. All this makes for a much less romantic and feel-good story than the idea of building a great new company from scratch, which is presumably why Mitt Romney seems to like to pretend he was mostly a venture capitalist on the campaign trail, but it’s a totally reasonable line of work for people to be involved with.