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Yahoo!'s Turnaround

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By David Gardner and Tom Gardner
October 21, 2003

David and Tom Gardner recently interviewed Yahoo! CEO Terry Semel on The Motley Fool Radio Show on NPR. This is the first of four parts.

TMF: Terry, Yahoo! (Nasdaq: YHOO) recently reported quarterly earnings. Your third-quarter profits more than doubled; your revenues were up 43% over last year. What was the highlight of this quarter and what was the lowlight?

 

Semel: I think the highlight was the fact that all of our advertising businesses are starting to grow so dramatically along with a lot of our paid services. So collectively we have had solid growth in both of our two core businesses: advertising and paid services.

 

What was the lowlight? The lowlight was that the Giants didn't get to the World Series.

 

TMF: (Laughing.) They were an awfully good team this year. It was disappointing to see. So was there anything that you would like to work on more for next quarter?

 

Semel: I think it is an ongoing process because there are so many opportunities at Yahoo! with so many ways of continuing to improve our services for our users that it ultimately -- as they spend more time in those services -- gives both our advertisers and ourselves more opportunities to actually monetize some of that. So priority is our big thing and it is what I keep focusing on.

 

TMF: Is Overture (Nasdaq: OVER) integrated?

 

Semel: Well, let's see. In my thinking it is totally integrated and in practicality the acquisition closed just recently. So we have a lot of work ahead but we have a very detailed road plan, which both companies have discussed over the past couple of months. We are really excited about both the acquisition and, more importantly, about being able to move together.

 

TMF: Terry, compare and contrast Yahoo! today to Yahoo! three years ago.

 

Semel: I have been at Yahoo! for two years and three months or four months. From the day I arrived, I found a company that in terms of the spirit in the people was sky-high and really wanting to find a way to get back and to provide better services and have a more successful company and just be better balanced -- but had no real business plan. So it was very difficult to do that for a while.

 

Today, we have employees who are very excited, who are pleased to be providing much better services and much better opportunities to our users and our customers and, at the same time, see their company financially prospering so it is happy again.

 

TMF: Do you feel as if when you arrived at Yahoo! two years and three months ago that the company was looking for leadership?

 

Semel: I think it was looking for leadership but perhaps for a different kind of leadership, for someone to... it's hard for me to say. I came from a totally different background so I looked at it as a great opportunity and a company that fundamentally needed a better business model and needed a different way of doing things. So there were so many things that we had to get better at to provide better services and to ultimately have an opportunity to be more financially successful. So it needed a new direction. They were new days.

 

TMF: Yahoo! has needed to transition from a world where advertising used to be banner-related, but now has moved to more the clicks and the paid guys taking placement within search. I am wondering, Terry, since advertising is such a key component of Yahoo!'s business, do you think this is a cyclical business. And if so, where are we in that cycle?

 

Semel: We have two basic means of advertising today. One would be more traditional. There would be large companies that traditionally do branded advertising on companies like Yahoo!. So in the early days, those were banner ads. Today, those could look more and more like TV spots and the video-streamed advertisements that they run on Yahoo! and different places. So it is much more sophisticated. It is much more fun, and at times, at least, more entertaining.

 

On the other side of the coin, with Overture and companies like it with sponsored search, it is much more about pay-per-click. So it is people who are either small or medium-sized businesses or potentially large businesses who are accustomed to direct marketing. Fundamentally, when you click on whatever their product might be, that is a way for us to ultimately get paid. So I think both are complementary to each other and both have really started to grow on a worldwide basis.

 

Tomorrow: The Google menace and other competition.