Yahoo Stakes Its Future on Engineer Unproven in Media: Tech

As president of EBay Inc. (EBAY)’s PayPal unit, Scott Thompson used an eye for detail and a push into mobile payments to more than double revenue and boost the user base to more than 100 million. He’ll face a bigger challenge at the helm of Yahoo! Inc (YHOO).

Thompson, 54, must lure users and advertisers back to a company besieged by declining sales and shrinking market share. His appointment yesterday as chief executive officer makes it less likely that Yahoo, the biggest U.S. Web portal, will continue to pursue strategic options such as selling the entire company, said Clayton Moran, an analyst at Benchmark Co.

“This makes it clear that they want to remain independent and try to drive a turnaround, which as we’ve seen over the years has been very difficult to achieve,” Moran said.

Thompson, whose past jobs include overseeing global technology for Visa Inc. (V), is an accountant and engineer who helped turn PayPal’s online payments into EBay’s fastest-growing business. Still, he may lack the advertising chops he’ll need to reverse fortunes at Yahoo, once the largest Internet-search provider, now an also-ran in search behind Google Inc. (GOOG) and a laggard in social media to Facebook Inc.

“He’s not a proven media executive,” Moran said. “Yahoo is an advertising-driven business. So I’m a bit surprised that they again went outside the industry to tap a new leader.”

Yahoo said yesterday Thompson will join the company Jan. 9, after leading PayPal since January 2008. Thompson steps in after a failed turnaround effort by former Yahoo CEO Carol Bartz, who was fired in September after less than three years at the helm.

Leveraging Talent

In an interview yesterday, Thompson said he enjoys working through complex problems and breaking down the challenges to be tackled. Yahoo already has plenty of folks with experience in fields such as advertising, he said.

“My job is to leverage all of that talent, experience that exists in the organization already,” he said. “I know there are some things we need to change and fix, and I love it. I think that’s part of what attracted me to come here -- that it’s going to be fast-paced, fun, hard, complex with a great team of people.”

That focus should help Yahoo execute Thompson’s plan to turn around its core assets, said Herman Leung, an analyst at Susquehanna Financial Group, who has a “neutral” rating on the stock and doesn’t own it.

Photographer: Michael Nagle/Bloomberg

Scott Thompson, CEO of Yahoo sits for a portrait outside of the PayPal shopping showroom in New York, U.S. Close

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Photographer: Michael Nagle/Bloomberg

Scott Thompson, CEO of Yahoo sits for a portrait outside of the PayPal shopping showroom in New York, U.S.

‘Execution-Focused’

“Scott is actually different from the predecessor CEOs, because the other CEOs were actually more big-picture focused and less hands-on,” he said. “I think Scott is probably the most hands-on and execution-focused type CEO that Yahoo can get.”

On a conference call yesterday, Thompson said his priorities are boosting revenue and putting the company at the forefront of innovation. Yahoo will turn its attention increasingly to mobile devices, such as tablet computers and smartphones, Thompson said. Rivals such as Facebook and Google likewise aim to take advantage of the shift to mobile computing.

“I just won’t rest until we’ve positioned this business and start to succeed,” Thompson said in the interview.

When it ousted Bartz, Yahoo undertook a review of its strategic options. One decision that is still on the “front burner” is a possible divestment of the company’s Asian assets, including its stakes in China and Japan, Moran said.

The company has been under investor pressure to realize value from its international assets, including a stake of about 40 percent in Alibaba Group Holding Ltd. (ALIBABZ) and co-ownership of Yahoo Japan with Softbank Corp. (9984) In October, Yahoo estimated the Alibaba stake was worth about $14 billion on a pretax basis.

Jack Ma ‘Interested’

After Sunnyvale, California-based Yahoo announced the strategic review, its advisers received inquiries from “multiple parties” interested in various unspecified options, according to a September memo to employees from co-founder Jerry Yang. Later, Alibaba Chairman Jack Ma said he was “very interested” in buying Yahoo.

Yahoo also has considered offers for a minority stake from bidders including TPG Capital and a group led by Silver Lake, people familiar with the matter said in November.

Under Bartz, who joined Yahoo in 2009, the company lost market share in the display-advertising businesses, an area that it has traditionally led. The company’s piece of the $12.3 billion U.S. market fell to 13.1 percent in 2011, from 14.4 percent the previous year, according to EMarketer Inc. The New York-based researcher said Yahoo lost its No. 1 position to Facebook last year.

Revenue Challenge

While Yahoo has been cutting costs, revenue growth has eluded the company as users drift to other sites where marketers are spending money. Yahoo’s third-quarter sales (YHOO), excluding revenue passed on to partner sites, declined 4.6 percent to $1.07 billion. U.S. Internet surfers spent 9.3 percent of their online time on Yahoo sites in November, down from 11 percent two years earlier, according to ComScore Inc. (SCOR)

Yahoo shares (YHOO) fell 0.9 percent today to $15.64 at the close in New York. The stock has gained 21 percent since Bartz’s departure on Sept. 6.

PayPal, owned by San Jose, California-based EBay, has services that help retailers and individuals exchange funds for purchases or payments, even without a credit card. As president, Thompson contributed to an increase of the payment service’s users from 50 million to more than 100 million, helping it close in on a goal of revenue as high as $7 billion by 2013, compared with about $3.3 billion (EBAY) in 2010.

Thompson also engineered the company’s expansion to online daily deals and mobile payments. His Web-industry experience may give him a better chance for success than Bartz, whose previous firm specialized in software for engineers and architects, said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco.

“He’s from the Internet industry,” Sinha said. “He is always around those sort of people who are in advertising. He can easily learn. Will it take longer to learn? Sure.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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