Yahoo fires its No. 2 as turnaround doubts arise

The departure is a further sign that CEO Marissa Mayer is struggling in her efforts to revive the company.

By MSN Money Partner Jan 16, 2014 12:50PM
Yahoo headquarters in Sunnyvale, Calif. (© Robert Galbraith/Newscom/Reuters)By Douglas Macmillan and Joann S. Lublin, The Wall Street Journal

Yahoo (YHOO) CEO Marissa Mayer is parting ways with her top executive, an expensive setback in her effort to turn around the struggling Internet portal.


Henrique de Castro, the chief operating officer Mayer poached from Google (GOOG) in 2012, is departing this week.


One of the highest-paid executives in Silicon Valley, De Castro exits after about a year on the job with a severance package that could be worth more than an estimated $42 million.


The departure is a further sign yet that Mayer is struggling to revive growth in Yahoo's advertising business, which has continued to lose share to rivals Facebook (FB) and Google. De Castro, functioning as the company's top ad executive and liaison to marketers on Madison Avenue, failed to convince advertisers to spend more money to reach visitors to its websites and mobile apps.


"There's been no sign of a turnaround at the company," said Mark Mahaney, managing director at RBC Capital Markets.


A spokeswoman for Yahoo declined to comment on the circumstances of De Castro's departure. She also declined to comment on the size of the package except to say that a performance-based portion of the package hasn't been determined.


A controversial hire and polarizing figure within Yahoo, De Castro often clashed with Mayer, according to one person familiar with the situation.


"There were tensions after the first couple of months" between De Castro and Mayer because of the company's slow progress, this person recalled. "He didn't deliver the advertising growth they were hoping for."


Mayer decided De Castro needed to leave due to increased pressure from Wall Street "to deliver the advertising growth," this person said.


She waited a while to make the management change in part because "they paid him a lot of money to get him away from Google," this person added.


Yahoo's stock didn't budge much following the news, falling 0.6 percent in after-hours trading Wednesday to $40.82. The stock has more than doubled in the past 12 months, though much of those gains are tied to growth in the company's stake in Alibaba Group Holdings. The Chinese e-commerce company is widely expected to file for an initial public offering in the coming months.


During her tenure, which began in July 2012, Mayer has yet to deliver meaningful profit growth as the company has failed to keep pace with broad gains in digital advertising spending.


Yahoo had just 5.8 percent of digital-ad revenue in the U.S. last year, down from 6.8 percent in 2012, according to research firm EMarketer Inc. Google, with 39.9 percent in 2013, and Facebook, with 7.4 percent, have each gained share over the past several years.


In October, the company reported that its third-quarter display-ad revenue, which is about 40% of the company's sales, slipped 7 percent to $421 million from a year ago, excluding commissions. Yahoo also lowered its revenue and profit outlook for fiscal 2013 after already slashing those expectations three months earlier.


De Castro's exit package may be worth about $42.1 million, if Yahoo drops limits on the sale of certain restricted shares through accelerated vesting, according to an estimate by compensation consultant Mark Reilly for The Wall Street Journal.


Reilly, head of the executive compensation practice for consultants Verisight Inc., said his preliminary estimate reflects Yahoo's $41.07 closing share price Wednesday, expected severance payments disclosed in Yahoo's latest proxy statement and his October 2012 employment offer letter.


Yahoo agreed that 25 percent of Mr. de Castro's restricted shares would vest immediately, with the rest vesting over the next three years. Its offer letter also promised to lift sales restrictions on such shares due to vest within 12 months of his termination without cause.


The $42.1 million mainly reflects restricted shares valued at $41.5 million as of Tuesday, according to Reilly. It also includes $600,000 in cash severance and $7,672 worth of continued health benefits disclosed in the proxy.


"It's a very large organizational challenge that Marissa and her team took on and you would expect to see some misfires along the way," Mahaney said. De Castro's hiring and tenure at the company "looks like a misfire," he said.


More from The Wall Street Journal

6Comments
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Severance package worth an estimated 42 million....

And they wonder why they arent making any money??





Jan 16, 2014 6:40PM
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A future Republican in the making.

http://www.youtube.c​​om/watch?v=AukE25is​p​VY

They are simply adorable and loving little things aren't they?
Jan 16, 2014 1:36PM
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I guess the Tumblr Cuckold porn is not as lucrative as hoped.
Jan 16, 2014 4:53PM
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Well I actually thought Mayer, was much brighter than this....??
Jan 16, 2014 4:46PM
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sounds like a questionably competent CEO making excuses for her own poor performance...
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