Carol Bartz Yahoo CEO Carol Bartz is living up to expectations -- but that ain't so good.

When she was hired a little over 18 months ago, Yahoo's (YHOO) board was looking for someone to deliver a decisive leadership style, operational excellence, shareholder value, and the ability to drive growth. To date, she's delivered on two of the four -- decisive leadership and operational excellence, as evidenced by Yahoo's dramatic growth in operating profits and its sale of non-core businesses.

But shareholder value and revenue growth have remained elusive. Bartz, the former CEO and executive chairwoman of Autodesk (ADSK) was hired for her reputation for operational excellence and technology acumen, even though she lacked advertising experience, where Yahoo derives the bulk of its revenues. People familiar with the board's thinking, but not authorized to speak on behalf of the company, say board members addressed that question prior to hiring Bartz, but they felt was it was more important to have a technologist at the helm of Yahoo to regain an edge against Google.

Steady Underperformance

Yahoo's revenues, excluding traffic acquisition costs, which Wall Street discounts, have steadily fallen over six consecutive quarters, with the exception of the fourth quarter. Yahoo's stock, meanwhile, has underperformed the Nasdaq and arch-rival Google for most of Bartz's tenure.

Yahoo's Quarterly Revenue Performance Under CEO Carol Bartz
Quarter Revenues, excluding TAC* Analyst Estimates
First Quarter, 2009 $1.156 Billion $1.204 Billion (missed)
Second Quarter, 2009 $1.136 Billion $1.142 Billion (missed)
Third Quarter, 2009 $1.131 Billion $1.123 Billion (beat)
Fourth Quarter, 2009 $1.258 Billion $1.231 Billion (beat)
First Quarter, 2010 $1.130 Billion $1.168 Billion (missed)
Second Quarter, 2010 $1.128 Billion $1.157 Billion (missed)

*Traffic Acquisition Costs
Source: Thomas Reuters

All of this raises the question of whether her tenure at Yahoo may be shorter than her four-year contract.

Bartz was the board's No. 1 CEO choice from the beginning, even though she initially expressed no interest in joining the company, say people familiar with the board's thinking. One person noted that Bartz likely has at least another two quarters to turn things around, but it would be surprising if she's there in a year if nothing changes.

In February, Yahoo's board added a revenue growth criteria to her bonus target, according to Yahoo's filing with the Securities and Exchange Commission.
For 2010, if the operating income target is attained, the amount (if any) by which the Company's revenue for 2010 exceeds a revenue performance target established by the Compensation Committee will also be a factor in determining 2010 bonus amounts under the EIP [Executive Incentive Plan] and the vesting of the financial performance-based restricted stock units granted in 2010. Adding the revenue goal creates an additional incentive, assuming the operating income measure is achieved, to drive growth through revenue generation.
Last year, Yahoo's board awarded Bartz 75% of her target bonus of $2 million, which did not have a revenue growth component.

Not Keeping Up With the Competition

Yahoo's performance is in stark contrast to competitors like Google (GOOG), which posted a whopping 24% increase in sales to $6.82 billion in the quarter and was still ahead when stripping out its partner sites, coming in at $5.94 billion with 7% year-over-year growth. Privately held Facebook, meanwhile, boasts that some of its advertisers have increased their spend by 20-fold in the past two years, accomplishing that feat during the bulk of Bartz's tenure at Yahoo.

"In one-and-half years, she's made a lot of changes that have been good, some bad," said another person familiar with the board's thinking, adding "She needs to start showing results, but there's no timetable."

In its last CEO go-round, Yahoo's top exec left by mutual agreement after 18 months. Embattled CEO and founder Jerry Yang saw his reputation pummeled by investors and Wall Street after Yahoo turned its nose up at a $31 a share buyout offer from Microsoft, and then a $33 a share bid in 2008, before Gates and Co. stepped back from the table.

Yang's appointment followed a six-year CEO stint by Hollywood studio king Terry Semel, whom investors nearly ran out of town after a rambunctious shareholder meeting. Semel was ousted for failing to drive revenue growth, losing a massive market position to then-young upstart Google, and lacking the vision to make smart acquisitions, like YouTube. He resigned within a week of the contentious shareholders' meeting. As a result of Semel's performance, Yahoo's board was afraid to go after another "media" executive after Yang stepped down, say people familiar with the board's thinking -- hence, the search for a technologist.

"She's a Disaster"

At least one major Yahoo investor isn't happy with Bartz and doesn't see her as an improvement over Semel.

"I think she's a disaster, but they probably don't have another internal candidate they can slip," the investor said. "She has no vision, has executed poorly on growing the company and pissed away most of the Microsoft savings [from its search partnership]. I give the board even lower grades."

Bartz struck a search partnership agreement with Microsoft (MSFT) in February. Under the deal, Microsoft's technology runs Yahoo's searches in the background while Yahoo continues to sell display advertising on its collection of Web sites. Yahoo loses its paid search advertising revenues under the deal, but it is freed up from the cost of maintaining and further developing its own search engine.

Yahoo and Bartz declined to comment for this story.

Ken Smith, co-manager of the Munder Growth Opportunities Fund, appreciates Bartz's cost-cutting ways and is willing to forgive a lack of revenue growth for now.

"Operationally, I'm pretty happy with where they are. I wish the stock was higher, but, realistically, it takes time," Smith said. "She has a new management team to assemble and is deciding which businesses to be in," said Smith, who estimates Bartz may need another six months to make that happen. "She got the company back to its roots. It's a media company and she is gearing all of it toward that."

Nonetheless, Munder Growth Opportunities shed roughly 1.5% of its Yahoo holdings since the start of this year, bringing its ownership to roughly 1.2 million shares as of June 30, according to data available through Morningstar. Yahoo represented a 4.7% slice of the fund as of June 30.

The Silver Lining

One of the things that has bought Bartz more time to enact a turnaround has been an improvements in operating margins, which has taken place within a weak economic environment that has affected a wide swath of companies. Other factors on the plus side are Yahoo's $3 billion dollar stock buyback program, decisive action jettisoning businesses that aren't core to Yahoo's efforts to evolve into a major media player, and, lastly, a huge turnover in Yahoo's board, where only six of the 11 directors who were present at the time she was hired still hold seats.

The departure of the five directors gave Bartz an opportunity to introduce potential allies to Yahoo's board, in the hope they would be seated until the next shareholders meeting, where they could officially be elected to serve.

"A smart CEO would bring people on the board, so if things got tough they'd have board members who were like-minded or, at the very least, have a high opinion of them,"" said Jon Holman, who heads up The Holman Group executive recruiting firm.

One of the vacancies filled included someone Bartz worked with in the past: Sue James, formerly a lead partner at Ernst & Young, performed audit work at Autodesk while Bartz was there. People familiar with the board said Bartz did not play a role in the large turnover that occurred, nor was she attempting to stack the board in her favor.

Holman, who is also a director on a public company, estimates that Bartz may have an additional six months to year-and-half to turn things around.

"In normal times, if a business hasn't taken off in a year to 18 months, that's a danger signal for a CEO," Holman said. "But we live in a strange time right now. The economy is still bad and I think most boards would be reluctant to say their CEO has failed if the business hasn't taken off. Nobody has done anything heroic in the last 18 months."

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This is a PRIME example of whats wrong with AMERICA, what ever happened to a solid performing company that posted modest profits, yet was ran well and functioning. I bet if they release her she will get MILLIONS. How about if the companys turning a profit, we make sure its ran well and not over burdened with excessive expense and excessive executive salaries, SCREW the stock market and how the stocks performing.

August 24 2010 at 10:26 AM Report abuse rate up rate down Reply

Don’t you wish we could get rid of another CEO after 18 months of fail policies? November will be a start.

August 24 2010 at 10:15 AM Report abuse -1 rate up rate down Reply
1 reply to airbrusher's comment
Louis Molnar

Give her time! She has to prioritize! She has the same issue that OBAMA does: far too much to handle. And they are being rated on a very short time scale, considering the length of time it took previous management to create the turmoil! They will both come out ahead in the long run, if they are given the time to maintain a solid schedule of addressing issues. The 'profits' will be reaped, when the crop has fully grown with the care and necessary fertilzers; without stopping to be beat up for all their efforts by family members who would rather whine [wine & dine] without offering supportive constructive help !

August 24 2010 at 10:03 AM Report abuse +1 rate up rate down Reply

Yahoo has been performing, but i can't think of too many innovations they have either brought out or been involved with lately. maybe they just want to be an advertising site. for instance... where are they with cellphones? Android is developed by Google ...for instance

August 24 2010 at 8:18 AM Report abuse rate up rate down Reply

Yahoo should merely print all the money they need. The US Gov't. does it. The Federal Reserve simply creates wealth from thin air and Barney Frank and Chris Dodd's mealy mouth statements. It's quite easy. Just pretend you're the US Gov't.

August 24 2010 at 7:00 AM Report abuse +1 rate up rate down Reply

Yahoo is nothing but a SPAMMER and a THEFT who steal's and sell private information! You will never cure SPAM as long as there in business!

August 23 2010 at 9:43 PM Report abuse rate up rate down Reply
1 reply to brockstarmusic's comment

My opinion also. Yahoo took my grandson's email address and sent spam to all his contacts! They created a page on my email/ATT home page showing my birthdate, a space where they had asked the age of one of my contacts, then the names of other of my contacts down the page. If you have ATT, you can't get rid of Yahoo.

August 24 2010 at 9:53 AM Report abuse rate up rate down Reply

yahoo bytes it!

August 23 2010 at 7:56 PM Report abuse rate up rate down Reply

Yahoo has fallen to progress, there wasn,t much comatition years ago when they were KING, now they have everyone else. When Yahoo first started it was the top site to go to, they had auctions that drew a ton of people, and gave ebay some comatition, as they closed all that stuff up they lost followers, Yahoo was a money maker and they tryed to make it different..didn,t work, like the old saying goes IF ITS NOT BROKE DON,T FIX IT. THe CEO,s distroy more bussiness and change things around for the worst every time.

August 23 2010 at 3:12 PM Report abuse +3 rate up rate down Reply

She is doing a great job in difficult environment and my humble family holdings are still on her to increase value. I hope Hulu is a possible acquisition; Though Alibaba may also some day be more valuable than the parent at this rate.

August 23 2010 at 2:34 PM Report abuse rate up rate down Reply

Since we are a nation that doesnt produce anything any more, the only thing that matters is the stock price. The entire country revolves around the stock price, so if a CEO cant get the price up, they are out for a replacement who will cheat or cook the books better. It wasnt that way in the 1950s up to the the mid 80s when most stocks slid sideways, but then again we used to manufacture theings here in those days

August 23 2010 at 1:55 PM Report abuse +5 rate up rate down Reply
1 reply to ugha323a's comment

You're correct.

August 24 2010 at 7:01 AM Report abuse rate up rate down Reply