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Will Investors Believe That Anyone Can Jack Up Yahoo's Advertising Revenue?


And can Marissa Mayer talk her way out of a $109 million mistake? We'll find out January 28.

The ouster of Yahoo Inc. (NASDAQ:YHOO) COO Henrique de Castro after only 15 months on the job is a clear signal, as if one was needed, that the company's quarterly results will not knock anybody's socks off when they are released after the market close on Jan. 28.

In fact, based on the scuttlebutt emerging from inside Yahoo, this may be a classic case of shooting the messenger.

CEO Marissa Mayer hired de Castro to be the company's top ad salesman. It was his job to talk Madison Avenue executives into paying more for the ads they placed on Yahoo's sites, and particularly on its mobile apps.

It looks like the ad companies chose not to go along with that plan.

Or, to employ the phraseology of deliberately leaked corporate insider talk, Mayer was disappointed in de Castro's efforts to boost Yahoo's revenue growth.

The stupefying part of this is the payout that de Castro is getting for his allegedly disappointing performance: an estimated $109 million, including compensation for his one year-plus on the job, bonus, stock awards, and severance, according to an estimate by executive compensation firm Equilar.

Just to put that in perspective, when Yahoo fired CEO Carol Bartz in 2011 after 16 months on the job, she walked out the door with a package described at the time as "massive," that reportedly totaled about $10 million.

The following year, Yahoo fired CEO Scott Thompson for lying on his resume. He received no severance, but was allowed to keep about $7 million in cash and stock he was paid during his few months' tenure.

First question: What kind of deal is de Castro's successor going to get?

Second question: Will investors believe that anyone can jack up Yahoo's advertising revenue, if de Castro couldn't? Especially since Mayer was so convinced he was the right person that she lured him away from Google (NASDAQ:GOOG) with a package like that?

Final question: What could be worse for a CEO than admitting a $109 million mistake?

And that brings us to a consideration of what Yahoo is likely to announce about its quarterly performance at the end of the month.

In the absence of a pre-announcement from Yahoo, it can be assumed that there was no huge miss on the bottom line.

In its last quarterly report, Yahoo stated that overall ad sales revenue dropped 5% year-over-year.

There's little reason to hope that the downward trend is reversing.

The latest figures from eMarketer suggest that Yahoo's share of the overall US digital advertising market dropped to a 5.8% share in 2013, from 6.8% in 2012. Looking forward, the market research firm projects Yahoo will keep dropping fractionally, this year and in 2015.

More ominously, eMarketer sees Google continuing its domination of online advertising through 2015, with Facebook (NASDAQ:FB) as a distant second, as both of those competitors continue to expand aggressively into advertising on mobile devices.

Consider those kinds of numbers and a COO's abrupt departure starts looking like a pre-announcement of sorts.

What Mayer needs now is some good news to offset those bummer sales figures. She has only been in the job since July 2012, and has already made a number of moves that have been applauded in the only way Wall Street knows how -- with an increase in the company's share price from about $14 to over $40.

Among her key decisions:
  • Yahoo sold about half of its shares of Chinese Internet giant Alibaba Group Holdings Ltd. back to the company, raising about $7.6 billion that was used mostly to buy back Yahoo stock.
  • Even better, Yahoo still owns about 24% of Alibaba, which is expected to launch an initial public offering this year, boosting Yahoo's worth in the process.
  • The company bought the popular microblogging platform Tumblr for $1.1 billion. Its presence on Yahoo's content list could attract advertisers looking for placement on a hot social media site.
  • Yahoo has scooped up more than 20 other smaller companies under Mayer's leadership -- tiny start-ups, with names like Qwiki and GhostBird, each bringing its own infusion of talent and new ideas into Yahoo.
  • And finally, there are the only changes that are actually visible to the Yahoo user. Many content stalwarts that were looking pretty tired, like email, the sports section, and the weather pages, have been redesigned.
It's a safe bet that another announcement is coming from Yahoo, on or before Jan. 28. It would be useless to speculate on what it might be, but it will likely be something upbeat and headline-worthy. Something that justifies a fast segue from the last quarter's advertising revenue figures.

See also:

Facebook, Inc. Makes a Mobile Move

Google's Nest Move: The Tech Giant Wants to Run Your Home Before Apple Does

Twitter: Is the Fix in for Earnings?
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