January 4, 2012 7:17 pm

Yahoo: market uninspired by new leader

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Cash pile from Asian asset sales would be defining challenge for new chief executive

When Scott Thompson was appointed chief executive of Yahoo on Wednesday the company’s stock fell 2 per cent on a day the market was flat. He should be glad, not insulted.

It is hard to blame the market reaction on Mr Thompson’s CV. As president, he grew Ebay’s PayPal payments division very well and his background in technology rather than media meets some, though not all, of Yahoo’s needs. It is more plausible that the drop reflects fading hopes that the core business will be the target of a premium private equity or strategic bid. The hiring of a new boss seems to reduce that possibility.

That the market was uninspired by the appointment of a new leader for Yahoo’s core internet advertising business, which badly needed one – Carol Bartz, the last chief, was fired in September – also shows how little of Yahoo’s current value is attributed to that business, as opposed to its ownership of stakes in China’s Alibaba and Yahoo Japan. The core is still very profitable but is in clear decline, both in its share of the display advertising market and in the amount of time users spend on its sites. And scepticism about a turnround is warranted if for no other reason than that it is hard to recall a case of a declining internet business being successfully revived. (Interestingly, Ebay might be an exception.)

The bar for success, in any case, has been set low for Mr Thompson, which he should welcome. He is likely to face a defining challenge early on. If Yahoo’s board is, as reported, near an agreement to dispense with the Asian assets, he will find himself in charge of a very substantial cash position. A decision will have to be taken about what should be returned to shareholders and what reinvested in the company. What Mr Thompson decides to do then will move Yahoo’s shares much more than did his appointment.

Email the Lex team in confidence at lex@ft.com

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