Yahoo! CEO Sees More Than Meets the Eye

Investors in Yahoo!(YHOO), and most of the company's sell-side analysts, have given a collective thumbs-down to the hiring of Scott Thompson as the company's next CEO. There's been a chorus of complaints about his weaknesses, which include:

He's not a media guy.

He's not an advertising guy.

He doesn't have any CEO experience.

He doesn't have any turnaround experience.

He indicated that he's going to invest in growth (i.e., try to raise revenues)

Jefferies' Youssef Squali downgraded Yahoo! this morning, saying the attempt to grow the company under Thompson promises to be "a long, costly and risky endeavor" and Thompson has "no turnaround experience." Does that mean Squali would have preferred the company to shrink because it's less costly, short in duration and not risky?

Citigroup's Mark Mahaney has stated, "By selecting Mr. Thompson, Yahoo! is explicitly pursuing a growth strategy, whereas we believe a value strategy might be more appropriate." Mahaney -- who recently went on Bloomberg TV and asserted that Yahoo! had $25 billion market capitalization (vs. its actual $19 billion market cap) -- has previously expressed similar beliefs on what kind of company Yahoo! should be. What he means is that he believes the company should start paying a big dividend and not reinvest it in the business.

I would respond to him by saying that, even though Yahoo! is profitable, it needs to stop shrinking as a company if it hopes to stay that way. Otherwise, there will be no cash to pay out a regular dividend.

>>Learn more about Real Money here.

The problem with all this criticism of Thompson is that any CEO Yahoo! hired would have been assailed by the business media and blogosphere. Following is the prior short list of CEO candidates, as previously reported -- and what the critics would have said had Yahoo! hired any one of them:

Marc Andreessen: Not a media guy; not an ad guy; he was a bomb as a CEO; n! o turnar ound experience; the companies on whose boards he has served -- Ning, Netscape, Opsware, and Hewlett-Packard (HPQ) -- have all been flops

Peter Chernin: Not a technology guy; no turnaround experience; too much a big-company guy; he's been out of a job for a few years, so he's too soft

Chris Liddell, ex-CFO of Microsoft(MSFT) and GM (GM): He's a bean-counter; not a media guy; never been a CEO; no turnaround experience, as he didn't turn around GM; not a visionary; no advertising experience

Jason Kilar of Hulu: Too young and experienced; Hulu's been a flop, as it couldn't even sell itself, and its subscriber numbers lag far behind those of Netflix (NFLX); no advertising experience; never needed to turn anything around

Kevin Johnson, CEO of Juniper(JNPR): He was a flop at Microsoft's MSN; Juniper hasn't done much under him; no media, advertising or turnaround experience

David Kenny, Yahoo! board member: He's unemployed; he failed at Akamai(AKAM); no turnaround experience; not a techie

Brian McAndrews, executive at Microsoft: His company has done little in advertising; MSN is a flop; no turnaround or media experience

Laura Desmond, CEO of Starcom MediaVest: No one's ever heard of her; no tech experience; no turnaround experience

David Rosenblatt, former DoubleClick CEO: No turnaround experience; he's been "retired" for a while now following the Google(GOOG) acquisition

I'm not trying to slam these people. I'm simply trying to make the point that every candidate has their weaknesses, and those would have been grist for the mill of all the Yahoo! cynics.

So how does Scott Thompson rank against all of these candidates? That's really the question that should be asked. Chernin! and And reessen wouldn't have been available, unless the Yahoo! board had decided to take its shareholders to the cleaners. Compared with the rest of the candidates on this list, I believe Thompson is far more attractive.

Why do I say this? I don't know what kind of a manager he'll be, but I do know he has the most to lose of anyone on this list -- in taking this job, he's leaving his perch at eBay(EBAY) subsidiary PayPal. He would have become very rich and powerful on any PayPal spin-off, which has been in discussion, and if it happens the company will only grow in influence. Thomson has really given up a lot, and he's done it because he's apparently judged that, on a risk-adjusted basis, he had more to gain by going to Yahoo!.

Think about that: He had more to gain by going to Yahoo!. To me, this is very promising. What did Carol Bartz have to risk when she came to the company? Nothing -- she was retired.

As such, I'm hopeful that Scott sees something here that other investors will soon see as well.

At the time of publication, the author was long YHOO.

>To order reprints of this article, click here: Reprints