Media Moves

Yahoo dismisses No. 2 executive

January 17, 2014

Posted by Liz Hester

It looks like turning around an Internet behemoth isn’t as easy as it sounds. Yahoo Chief Executive Officer Marissa Meyer ousted her No. 2 executive Henrique de Castro, indicating the company isn’t turning around as fast as expected.

Douglas MacMillan and Joann S. Lublin had this story in the Wall Street Journal:

Henrique de Castro, the chief operating officer Ms. Mayer poached from Google Inc.GOOG +0.66% in 2012, is departing this week. One of the highest-paid executives in Silicon Valley, Mr. de Castro exits after about a year on the job with a severance package that could be worth more than an estimated $42 million.

The departure is a further sign yet that Ms. Mayer is struggling to revive growth in Yahoo’s advertising business, which has continued to lose share to rivals Facebook Inc. FB +0.10% and Google. Mr. de Castro, functioning as the company’s top ad executive and liaison to marketers on Madison Avenue, failed to convince advertisers to spend more money to reach visitors to its websites and mobile apps.

“There’s been no sign of a turnaround at the company,” said Mark Mahaney, managing director at RBC Capital Markets.

A spokeswoman for Yahoo declined to comment on the circumstances of Mr. de Castro’s departure. She also declined to comment on the size of the package except to say that a performance-based portion of the package hasn’t been determined.

The Associated Press reported that de Castro would leave with restricted stock that hadn’t yet vested in a story by Michael Liedtke:

It’s doubtful de Castro would be leaving if he were bringing in the revenue that Mayer envisioned, said BGC Financial analyst Colin Gillis.

“This was one of her key hires and he is already gone,” Gillis said. “It doesn’t look good.”

Mayer, who knew de Castro from the days when both executives worked at Google, will likely be questioned about what went wrong when she reviews Yahoo’s financial results for the fourth quarter, scheduled to come out Jan. 28. The Sunnyvale, Calif., company hasn’t warned that it missed its revenue forecast for the three-month period ending in December, an indication that Yahoo must have at least been reasonably close to hitting that financial target set by Mayer. Yahoo had projected fourth-quarter revenue of about $1.2 billion after paying commissions to its ad partners, unchanged from the previous year.

De Castro, 48, will leave Yahoo with much of the money and stock that he got when Mayer lured him to California from a Google advertising job in Europe. His severance package includes $20 million of restricted stock that wasn’t scheduled to fully vest until late 2016. He also will receive $1.2 million to cover the next two years of his salary. His rights to another batch of restricted stock valued at $9 million also have vested.

Brian Womack of Bloomberg estimated that de Castro was leaving Yahoo $109 million richer. That’s an excessive annual salary by any standard:

De Castro, Mayer’s top lieutenant, joined Yahoo in November 2012 from Google. He will receive severance benefits and equity awards in line with his contract, Yahoo said yesterday. He made an estimated $109 million from his stint at Yahoo, including salary, bonus, stock awards, compensation for leaving Google and severance payments, according to Equilar Inc., a compensation researcher based in Redwood CityCalifornia.

The firing is another sign of Mayer’s struggle to get the company on track as Yahoo searches for more users and ad dollars amid rising competition from younger rivals.

“This is going to be a very challenging turnaround,” said Ben Schachter, an analyst at Macquarie Securities. “When we talk to advertisers, we don’t hear a lot of excitement for traditional display ads — be it on Yahoo or others.”

Yahoo shares fell 1.8 percent to $40.34 at the close in New York. The company’s stock doubled last year.

While the stock has surged, some investors have attributed the gains to optimism regarding Yahoo’s stake in Chinese e-commerce company Alibaba Group Holding Ltd., rather than faith in Mayer’s turnaround. Alibaba, which plans to sell shares to the public, more than doubled profit in the second quarter to $707 million.

Reporting for the New York Times, Vindu Goel pointed out that there was no ceremony around his departure:

There was none of the usual corporate boilerplate that typically sugarcoats such departures — no praise for his service from Yahoo’s chief executive, Ms. Mayer, no mention of a sudden interest that Mr. de Castro had taken in spending more time with his family. A Yahoo spokeswoman said the company had no further comment on the matter.

But Ms. Mayer, who left Google to become Yahoo’s chief executive in mid-2012, was clearly displeased with Mr. de Castro’s performance.

In a memo announcing the leadership reorganization to Yahoo’s staff, she wrote, “I made the difficult decision that our COO, Henrique de Castro, should leave the company. I appreciate Henrique’s contributions and wish him the best in his future endeavors.”

Meyer is juggling unhappy analysts and investors who are waiting for some good news about the company. It’s yet another black mark on her tenure at the top that de Castro was able to negotiate such a huge severance package. There must be more to the story than simply stagnant growth to throw money at him to leave. Here’s hoping some enterprising reporter can get to the bottom of it.

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