It was predictable that the Yahoo! corporate PR department would shift into high-gear to defend Terry Semel in the wake of yesterday's finalized "Plan B" which was submitted to them.
When they were able to finally get back to Riva Richmond of Dow Jones last night at 11:03pm with a response to her question about their reaction to "Plan B," they stated that the company has:
"a clear strategy to create shareholder value," through aggressive pursuit of its ongoing efforts to improve its ability to make money from search advertising, expand its lead in display advertising and secure leads in emerging areas like social media, video and mobile services.
"Under Terry Semel's leadership over the past five years, Yahoo! has achieved tremendous growth, consistent profitability and impressive returns for shareholders, with our stock price rising four fold, " she said. "As the Internet continues to grow and evolve rapidly, Yahoo! is in a strong competitive position to be a leader in this transformation and to capitalize on the huge growth opportunities ahead for the Internet. We intend to do just that."
Yahoo!'s stock price is up 4 times from its $7 all-time low. However, that low was hit under Mr. Semel's leadership. To be completely accurate, Yahoo! should acknowledge that, from Mr. Semel's May 1, 2001, start date, Yahoo!'s stock is up 229% through yesterday's close.
Here's an excerpt from the finalized "Plan B" on why that 229% is not acceptable, given what return Yahoo! shareholders should have received:
Terry Semel and his defenders will argue that Yahoo!’s stock price has gone up 227% since his start date of May 1, 2001 through today. However, if you properly analyze his tenure, there have been three distinct periods:
May 2001 – December 2002: Yahoo! drops 7% in value.
January 2003 – December 2004: Yahoo! grows by 355% in value.
January 2005 – Present: Yahoo! drops 14% in value.
There has only been one period in which Yahoo!’s valuation has increased under Terry Semel’s watch and we would argue that this had to do with a general recovery in the Internet Advertising market, which benefited Yahoo! and its two main rivals – Google and Microsoft – during this time. The rising tide lifted all boats/companies which were dependent on the ad market for the majorities of their revenues. As Yahoo! also had amassed enough cash before Mr. Semel’s arrival, it had the fortitude to go through the Internet Advertising drought which claimed the lives of many pre-Bubble competitors (e.g., Excite, Lycos, etc.). The only credible remaining search players post-Bubble were Yahoo!, Google, and Microsoft and advertising dollars could only go to these three players after the general market recovery began to happen. Yahoo! benefited from this rising tide (especially in display ads), for a while.
Yahoo!’s market share has been flat and steadily eroding over the past 4 years, while Google’s has dramatically accelerated. Yahoo! had a 28.9% share in February 2003 (according to Neilsen NetRatings), compared to 29.5% for Google. However, Yahoo!’s share had dropped to 19.5% as of December 2006, and Google’s had increased to 65.4% (according to Bank of America Equity Research). The total ad market has increased from $1.4B in 2002 to $15B annually today (and growing at 50% per annum). Had Yahoo!, under Terry Semel, been able to grow its share to even 30% today, Yahoo! shareholders would have received an additional $1.6B in revenues last year – or 25% higher than their reported $6.4B in revenues, but still well below Google’s $10.6B in revenues last year.
The bottom line is that – in the most relevant and direct comparison to its arch-rival, Google – since Google’s IPO in August 2004 through today, Google’s stock price is up 336% versus Yahoo!’s stock price being up only 16%. Google has grown its shareholder value 21 times more efficiently than Yahoo! over this time period, when the Internet ad market has been booming. We don’t believe that any CEO should keep his/her job when your #1 competitor is 21 times as successful as you over an extended period of time.
Conclusion: Yahoo!’s board needs to immediately remove Mr. Semel – who is 64 – and begin a search process to find a new Chairman and CEO. This Chairman and CEO search should examine all qualified internal and external candidates.