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Yahoo CEO Mayer Dismisses Operating Chief De Castro

Jan. 16 (Bloomberg) -- Timothy Draper, founder and managing director of Draper Fisher Jurvetson, talks about the performance of Yahoo! Inc. Chief Executive Officer Marissa Mayer and the reported dismissal of Chief Operating Officer Henrique de Castro. Draper speaks with Trish Regan on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Yahoo! Inc. Chief Executive Officer Marissa Mayer dismissed Chief Operating Officer Henrique de Castro after 14 months, amid disappointment with his efforts to boost growth, according to people with knowledge of the matter.

In a memo to employees, Mayer said she made the decision that de Castro should leave, according to a person who saw the note and asked not to be identified because it wasn’t made public. There had been friction between the two executives for at least six months, another person said.

Mayer, who took the helm in July 2012, has been working to reinvent Yahoo by revamping products and adding exclusive content to help it compete with Google Inc. and Facebook Inc. for users and advertisers. New products, redesigned e-mail and a spending spree on startups, engineers and media figures so far haven’t translated to growth. Analysts project that revenue dropped 1 percent in 2013, with a 3 percent gain estimated for this year and next, according to data compiled by Bloomberg.

“It’s a negative for Yahoo,” said Scott Kessler, an analyst at S&P Capital IQ who recommends holding the stock. “This is someone who had a tremendous amount of responsibility. Now, there’s a hole in the executive team.”

Photographer: Ethan Miller/Getty Images

Yahoo! President and CEO Marissa Mayer delivers a keynote address at the 2014 International CES on Jan. 7, 2014. Close

Yahoo! President and CEO Marissa Mayer delivers a keynote address at the 2014... Read More

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Photographer: Ethan Miller/Getty Images

Yahoo! President and CEO Marissa Mayer delivers a keynote address at the 2014 International CES on Jan. 7, 2014.

De Castro’s departure, the first high-profile exit of an executive Mayer recruited, is effective today, the company said yesterday in a filing with the U.S. Securities and Exchange Commission. Yahoo didn’t name a replacement. Sarah Meron, a spokeswoman for Yahoo, declined to comment. De Castro, 48, didn’t respond to requests for comment.

Wooing Advertisers

De Castro, Mayer’s top lieutenant, joined Yahoo in November 2012 from Google. He will receive severance benefits and equity awards in line with his contract, Yahoo said yesterday. He made an estimated $109 million from his stint at Yahoo, including salary, bonus, stock awards, compensation for leaving Google and severance payments, according to Equilar Inc., a compensation researcher based in Redwood City, California.

The firing is another sign of Mayer’s struggle to get the company on track as Yahoo searches for more users and ad dollars amid rising competition from younger rivals.

“This is going to be a very challenging turnaround,” said Ben Schachter, an analyst at Macquarie Securities. “When we talk to advertisers, we don’t hear a lot of excitement for traditional display ads -- be it on Yahoo or others.”

Yahoo shares fell 1.8 percent to $40.34 at the close in New York. The company’s stock doubled last year.

Photographer: David Paul Morris/Bloomberg

Yahoo! Inc. signage is displayed at the company's headquarters in Sunnyvale, California. Close

Yahoo! Inc. signage is displayed at the company's headquarters in Sunnyvale, California.

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Photographer: David Paul Morris/Bloomberg

Yahoo! Inc. signage is displayed at the company's headquarters in Sunnyvale, California.

Alibaba Stake

While the stock has surged, some investors have attributed the gains to optimism regarding Yahoo’s stake in Chinese e-commerce company Alibaba Group Holding Ltd., rather than faith in Mayer’s turnaround. Alibaba, which plans to sell shares to the public, more than doubled profit in the second quarter to $707 million.

De Castro’s exit comes after Sunnyvale, California-based Yahoo unveiled new advertising options earlier this month, including a service to help marketers more accurately target audiences and a new ad exchange, which gives companies more tools to manage promotions on their websites. Mayer has also overhauled the company’s e-mail platform and acquired more than two dozen companies, including Tumblr Inc. for more than $1 billion last year, and has hired journalists such as Katie Couric to bolster news and media content.

Google Competition

Yahoo’s share of the U.S. digital-advertising market is estimated to shrink to 5 percent in 2015 from 5.8 percent last year, while Google and Facebook both may expand their shares next year, to 42 percent and 9 percent respectively, according to EMarketer Inc.

“It has seemed that de Castro was hired at a time when the company’s senior management was not particularly focused on advertising, and with time it seems that there is both a focus and increasing concern about the absence of a turnaround,” Brian Wieser, an analyst at Pivotal Research Group, said in an e-mail. He rates Yahoo shares a hold.

Mayer is putting some of de Castro’s lieutenants under her own leadership. Among those are Ned Brody, head of the Americas region; Dawn Airey, senior vice president for Europe, Middle East and Africa; and Rose Tsou, senior vice president for Asia-Pacific, according to the memo.

Mayer’s Challenge

While Yahoo has continued to be profitable under Mayer, who also joined from Google, it has struggled to deliver sales growth. Third-quarter sales, minus revenue passed on to partner sites, slid about 1 percent to $1.08 billion from a year earlier. Fourth-quarter revenue is forecast to be down 1 percent.

Before joining Mayer at Yahoo, de Castro was vice president of Google’s partner business solutions worldwide. Since arriving at Yahoo in November 2012, de Castro’s salary, bonuses and equity grants totaled $44.8 million before taxes, according to Equilar. That included restricted stock units to compensate him for leaving Google, where he worked since 2006. Upon his termination, de Castro will also receive $64.6 million, including accelerated equity grants, in accordance with his contract, Equilar said.

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

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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