Yahoo’s tough quarter plays into Icahn’s hands

23 Jul 2008

Investor Carl Icahn’s role in Microsoft’s pursuit of online portal Yahoo! took a predictable twist as a 19pc fall in the company’s second-quarter profits arms him with a strong agenda as he joins Yahoo!’s board.

The saga of Microsoft’s twice-rebuffed offer, first for Yahoo! in its entirety for US$46.6bn followed an offer for the company’s search business, has resulted in Icahn buying 5pc of the company and this week winning a place for himself and two others on Yahoo!’s board.

This week, shareholders will vote on the new board and the outcome will be anything if not interesting. No doubt Icahn will use this week’s results to question Yang’s leadership.

In the second quarter, Yahoo! saw profits slip 19pc to US$131m, despite a 6pc increase in revenues to US$1.8bn.

Nevertheless Yahoo! president, Sue Decker, has put a brave face on the results, saying Yahoo!’s relationship with Google is already reaping results along with strong relationships with major ad agencies like Publicus and publishing partners CNET and Turner.

For the last two days, Yahoo! has been trumpeting the end of the proxy battle, but it is clear the battle has eaten into profitability, and with Icahn now on the board, things could get very interesting.

However, Yang is intent on moving on. “We are seeing validation that we have the right strategy as we continue to make transformational investments that position us to take advantage of pivotal trends driving growth on the internet,” he said.

The latest ComScore figures actually show Yahoo!’s strategies are paying off online. The company made an 11pc increase in search queries year on year and analysts are confident the company will make its projected revenue outlook of US$7.4bn to US$7.9bn for the year.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years