Yahoo CEO remains upbeat despite lackluster quarter

[July 23, 2008]  SAN FRANCISCO (AP) -- With Microsoft's $47.5 billion takeover bid off the table and his company's stock price down 20 percent during his 13-month reign as Yahoo's CEO, Jerry Yang has a message for his exasperated shareholders: Things aren't as bleak as they look.

"This company is doing just fine in a tough economy and a tough environment," Yang told The Associated Press in an interview late Tuesday. "We think there are a lot of good things to come still."

Yahoo Inc.'s second-quarter results didn't provide much reason for enthusiasm.

But at least they weren't as bad as many investors feared after Yahoo spent months sparring with Microsoft Corp. and dissident shareholder Carl Icahn while also trying to cope with a weakening U.S. economy that's make it tougher to sell online advertising -- the company's lifeblood.

"It was a 'rice-cracker' quarter," said Canaccord Adams analyst Colin Gillis. "It didn't taste great, but it wasn't totally horrible either."

Investors found enough to like to nudge Yahoo shares up 59 cents, or 2.8 percent, to $21.99 in Tuesday's extended trading after finishing at $21.40, down 27 cents, in the regular session.

The stock still remains slightly below where it stood last week before Internet search leader Google Inc. set off alarms about the state of the online ad market with second-quarter earnings that came in below analyst estimates.

Yahoo letdowns are far more common that the occasional stumble by Google.

The April-June period marks the ninth time in the past 10 quarters that Yahoo's profit has slipped from the previous year.

The company earned $131 million, or 9 cents per share, an 18 percent drop from $161 million, or 11 cents per share, last year.

Analysts had projected earnings of 11 cents per share in the most recent quarter, according to Thomson Financial.

Yahoo's financial erosion has dragged down its stock, leaving it exposed to Microsoft's unsolicited takeover bid and igniting shareholder protests like the one that Icahn had been waging until Yang negotiated a truce Monday.

Icahn, who wanted to fire Yang as chief executive officer, will get a seat on Yahoo's board along with two allies. Eight of Yahoo's current nine directors, including Yang, will retain their positions.

"They dodged a bullet, but the future still looks cloudy," said Carl Tobias, a University of Richmond law professor who has been following Yahoo's wrestling match with Microsoft and Icahn.

Although Icahn isn't breathing down his neck for now, Yang probably won't have much more longer to deliver on his turnaround promises, said James Post, a Boston University professor specializing in corporate governance and business ethics.

"I think he is going to have to take some major strategic action before the end of the year," Post said. "The support Jerry has now seems much more fragile than he has had in the past."

Yahoo shareholders will have a chance to confront Yang Aug. 1 at the company's annual meeting.

Even though Icahn has backed off, some shareholders are still expected to oppose the re-election of Yahoo's current directors to punctuate their dismay with company's struggles.

A major shareholder advisory firm, Glass Lewis & Co., added fuel to the fire late Tuesday by recommending votes against three Yahoo directors -- Chairman Roy Bostock, Ronald Burkle and Arthur Kern. More than 30 percent of Yahoo shareholders opposed that trio's re-election last year.

Glass Lewis backed Yang's re-election.

An even bigger major advisory firm, RiskMetrics, is expected to make its recommendations to shareholders Wednesday.

Yang, 39, said he doesn't feel enough time has elapsed for shareholders to assess his management skills because nearly half his tenure has been consumed by the on-again, off-again negotiations with Microsoft.

"I am as excited as I have ever been to lead this company," said Yang, who started Yahoo 14 years ago at Stanford University. "We have a sense of urgency to create value. Our stockholders and board will hold us to that."

Although he had been trading public barbs with Icahn before the cease-fire, Yang said he thinks the billionaire will be a valuable addition to the board.

Icahn "is a very smart guy on how to create value and that is a positive," Yang said.

In his public statements, Icahn has indicated he still believes a sale of all or part of Yahoo is the best way to boost the company's stock. Icahn has a strong incentive to increase the stock price because he paid about $25 per share for his 5 percent stake in the company.

Yang, who owns a 3.9 percent stake in Yahoo, remains interested in any deal -- including a sale of the entire company to Microsoft -- that recognizes the value of Yahoo's franchise.

As of Tuesday, Yahoo's market value was about $18 billion below the $47.5 billion Microsoft CEO Steve Ballmer offered in early May. Ballmer withdrew the $33-per-share bid after Yang sought $37 a share, or more than $52 billion.

Yang believes he can dramatically accelerate Yahoo's revenue growth during the next two years by extending the reach of its own online marketing network and drawing upon Google's superior technology to sell some ads on Yahoo's Web site.

If the proposed partnership isn't blocked by antitrust regulators, Yahoo hopes to start displaying some Google-generated ads in September. Management estimates the Google deal will boost Yahoo's annual revenue by $800 million.

[Associated Press; By MICHAEL LIEDTKE]

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