Yahoo! COO Ouster an Expensive Farewell

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If you follow Yahoo! (NASDAQ: YHOO  ) , you've likely heard that COO Henrique de Castro was shown the door today, following a brief SEC Form 8-K that was filed just yesterday. As you might imagine, when a senior exec departs -- de Castro was essentially Yahoo! CEO Marissa Mayer's second-in-command -- it's news.

But when the parting of ways is so quick, involves one of Mayer's former Google coworkers, and turns out to be an awfully expensive split, questions and rumors are bound to follow. But the only question that really matters to investors is what, if any, impact the change will have on Yahoo!'s growth initiatives.

But first, the gossip
One of the questions that arose early on following the news of de Castro's unceremonious departure was: What did it say about Mayer? He was one of her first big-time hires, and she snagged him from rival Google, which was seen by many as a coup. Today, some pundits suggest the COO's ouster is indicative of Yahoo!'s stagnant revenue growth. That's shortsighted, for a number of reasons.

Word has it Mayer and de Castro have been on the outs for a while and it culminated in his abrupt firing. Initially, no one was talking about whether he quit or was let go, but it appears to have been the latter. Apparently, he wasn't making many friends in other Yahoo! departments, either.

Based on an internal memo, Mayer confirms de Castro didn't resign but was let go and his duties were divvied up among those in Yahoo!'s inner circle. All those people will report to Mayer, who has recently become a great deal more active in Yahoo!'s content and media efforts anyway, so that should help mitigate some of the challenges a senior-exec transition can create.

What really matters
Albeit brief, the SEC filing included a few tidbits that will cost Yahoo! millions. As per the filing, de Castro will receive the severance benefits as outlined in his employment letter, along with equity awards. Depending on the value of the stock options, that bye-bye package could be worth around $42 million. With a tenure of just over a year, de Castro's short time with Yahoo! was an extremely lucrative one -- and a costly lesson for the company.

Still, de Castro's departure doesn't make much of a difference in the long run. The success of Yahoo! is still on Mayer. Does she need a sound team around her? Of course. But it's clear de Castro either didn't share Mayer's vision or was unable to implement it. A tough decision needed to be made and it was. Time to move on and focus on what matters: winning back some of Google's industry-leading $14.9 billion in quarterly online revenues, most of which are related to advertising.

Final Foolish thoughts
Henrique de Castro cost Mayer and the Yahoo! team dearly in terms of dollars and cents. There are even some pundits who point to the firing as somehow indicative of Yahoo!'s prospects moving forward, but that's wrong. Yahoo!'s objectives and the means of accomplishing them remain the same; it's about their successful execution.

As mentioned in an article a couple of weeks ago, the return of Yahoo! rests on Mayer driving revenues by continuing to build out its mobile business and adding quality content to spur user activity, which in turn helps ad sales. If you have a mid-term investment time horizon, Yahoo! remains a solid growth opportunity based on executing its shift in business focus -- with or without de Castro.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 17, 2014, at 11:42 AM, laethyn wrote:

    "The success of Yahoo! is still on Mayer."

    No, it's not. It's on the employees. Y'know, the people who actually work their butts off to try and make yahoo a better place for the users, but whose hands are tied by execs who don't know what they are doing...

  • Report this Comment On January 17, 2014, at 3:21 PM, gskinner75006 wrote:

    The person that is responsible for writing such an absurd employment contract should be fired along with them. Who every counter signed his contract threw their fiduciary responsibility to the company out the window. The fact someone can be paid this kind of money for being fired for job performance should be reviewed for fraud by the board. Every contact they are party to should be reviewed posthaste.

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Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

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