Market Overview

Yahoo Hires PayPal President Thompson As CEO; Was it the Right Decision?


Floundering digital media company Yahoo (NASDAQ: YHOO) announced on Wednesday that it has hired PayPal president Scott Thompson as its new CEO. At first glance, the market is not exactly ebullient about the decision, as YHOO shares are trading down 2.49% at $15.89. Given the fluid situation at the company where a number of strategic transactions are being discussed, including a potential sale of Yahoo's valuable stakes in Alibaba and Yahoo Japan, one would think that investors would have a positive reaction to news that a new CEO has been found.

The trading activity in the stock, however, suggests that this is not the case. The market's reaction to the news may be largely based on skepticism that has built up over the years with regard to YHOO's board of directors, which has received scathing criticism from hedge fund manager Dan Loeb, whose fund, Third Point LLC, owns a substantial stake in the company, among others.

While investors may have reservations about the board of directors' decision-making abilities in relation to key management hires, Scott Thompson's background could be exacerbating the worries. It was not that long ago, January 2009 to be exact, that the board hired Carol Bartz to lead Yahoo as its CEO. Bartz had previously been the long-time CEO of Autodesk (NASDAQ: ADSK), a design software and services company - a very different business model than Yahoo's.

The company continued its long-term struggles under Bartz, who was subsequently fired on September 9, 2011. Some observers have pointed to Bartz's tenure at the company as a mistake from the beginning, believing that she was not the right fit for Yahoo, and should have never been brought in as CEO in the first place. Some contended that her background with Autodesk was not suitable to running a company such as Yahoo, which is a leader, albeit a struggling one, in the digital media space.

In the case of Scott Thompson, similar questions could be raised. The New York Times declares, "Mr. Thompson analysts say, has a background mainly as a technologist instead of being an expert in digital media or corporate turnarounds." Prior to PayPal, Thompson worked at Visa (NYSE: V), and holds a degree in accounting from Stonehill College.

While PayPal has been extraordinarily successful, driving most of the growth at parent company eBay (NASDAQ: EBAY), the challenges that he will face at Yahoo will be quite different than anything else he has done. Particularly, from a strategic perspective, Yahoo provides challenges above and beyond executing on a solid business model. In reality, the company needs a turnaround.

The market's initial reaction to his hiring suggests that there is plenty of uncertainty about whether he is the man that can turn Yahoo's fortunes around in the coming years. Given the company's past failures, continued speculation about strategic transactions, and the general frustration of Yahoo shareholders, Thompson is going to be under immediate scrutiny and pressure in his new role.


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