Yang Follows Semel at Yahoo!

NEW YORK Terry Semel resigned under pressure Monday as CEO of Yahoo! and the company handed the reins back to Jerry Yang, the billionaire co-founder of the search engine that became one of the Internet’s earliest success stories.

Yahoo! said Semel has assumed the role of nonexecutive chairman and would serve as an adviser to Yang, named CEO, and Susan Decker, who was promoted to president and is considered a prime candidate for the CEO spot someday.

Semel has been under scrutiny from shareholders who have expressed bewilderment at his generous pay packages while Yahoo! stock has gone nowhere and rival Google widens its competitive lead. Semel, the former co-chairman of Warner Bros., has earned about $450 million, mostly from Yahoo! stock options, since taking over as CEO in May 2001.

While Yahoo! was rebounding from the bursting of the Internet bubble, Semel’s hefty compensation was a nonissue. More recently, Yahoo!’s stock dropped 35 percent last year while Semel earned $71.7 million.

That was a bit too much to take for shareholders, who criticized Semel and other top management at the company’s shareholder meeting last week, prompting observers to speculate that Semel would soon be out.

Semel, however, earned kudos early on at Yahoo! for quickly turning around the company and building shareholder value. When he joined six years ago, he purchased with his own money $1 million in Yahoo! stock, which has more than tripled since then on a split-adjusted basis.

Much like the success he had while running Warner Bros. with co-chairman Bob Daly, Semel oversaw a rapid rise in revenue at the company. At Yahoo!, sales jumped from about $750 million annually to $6.4 billion last year under his tenure. In the two decades Daly and Semel ran Warners, revenue there rose from $750 million to $11 billion.

But some said Monday that there was nothing spectacular about Semel’s early success at Yahoo! Sure, the stock surged 225 percent during his reign—far outpacing the S&P 500’s rise of 28.5 percent—but other Internet stalwarts also fared well. Shares of eBay, for example, are up 195 percent during the same time frame, and Amazon is up 390 percent.

More significantly, when Google, a direct competitor, went public three years ago, it had a market capitalization of $23 billion compared with Yahoo!’s $39 billion. But Yahoo!’s value has since shrunk to $37.8 billion, while Google’s worth has catapulted to $160.5 billion.

“Semel was made the gatekeeper to the promise of the Internet, and he handed the keys to Google,” said Cody Willard, a hedge-fund manager who has owned Google shares since its initial public offering.

Willard, who recently founded online video concern RevolutioNetwork.com, said that Semel mistakenly has been running Yahoo! too much like a film studio or TV channel.

“The Internet is not to be centrally controlled,” he said. “And Semel’s Hollywood-crony approach to media is completely out of place in the age of empowerment.”

Indeed, one of Semel’s missteps, critics said, was hiring former ABC Entertainment chairman Lloyd Braun to run the Yahoo! Media Group. While Braun was busying himself with minimally effective online entertainment creations, YouTube and its user-generated video was taking the Internet by storm. Braun lasted only two years, and when Google purchased YouTube for $1.65 billion, industry pundits largely saw it as a Google victory at the expense of Semel and Braun.

Investors on Monday took Semel’s resignation and the elevation of Yang and Decker as a positive sign. Yahoo! shares advanced 3 percent during the regular session and another 5 percent in after-hours trading, when the announcement was made. Yahoo! was the second-biggest gainer Monday on The Hollywood Reporter‘s Showbiz 50 stock index.

Semel’s announcement was coupled with more bad news on the earnings front. During a conference call with analysts, executives said that while Yahoo!’s new Panama ad-search initiative is performing better than was expected, its lagging display ad business will negate Panama’s gains in the current quarter.

Yang, also on the call, seemed to dismiss speculation that Yahoo! is interested in being acquired by a larger company. While news of such interest from Microsoft a few weeks ago led to a brief surge in Yahoo! shares, Yang told investors Monday that he expects Yahoo to remain “a vibrant independent company.”

“[Semel] did a good job at Yahoo!, especially at the beginning,” said Hal Vogel, president of Vogel Capital Management and a longtime media and entertainment analyst. “They needed an injection of a media- and entertainment-savvy executive. And the stock did extremely well in the early going to reflect that.”

Semel streamlined operations and laid people off to focus Yahoo! on key business areas and at the same time used his experience in diversifying revenue from his old Warners days.

Getting money only from online advertising is risky, especially when stock markets fall on hard times and marketers cut their budgets, Semel argued as he successfully launched premium services.

But enthusiasm for Semel turned to disillusionment with the ascension of Google.

“Yahoo! definitely lost momentum relative to its peer group,” Vogel said.