Yahoo chief's departure called a shock

The quintessential Internet start-up — acknowledged as the model of the New Economy — now looks as vulnerable as one of the scores of e-commerce firms that folded last year.

Yesterday, Yahoo dropped a bomb on Wall Street with news that chief executive officer Timothy Koogle, 49, was stepping down and that revenue for the current quarter would be well below expectations.

The abrupt departure of Koogle, 1999’s top-paid CEO with $1.7 billion in compensation, according to a USA Today analysis, underscores Yahoo’s search for a new direction as it grapples with investor disgust and a stock price that is more than 90 percent below its peak of $205 last year.

The troubles of Yahoo, the Internet’s No. 1 portal, also slam home just how quickly the market for online advertising is falling apart and casts more doubt on whether the Internet can be a viable advertising-driven vehicle.

"The opportunity has been scaled back," said Sasha Kostadinov, analyst at McDonald Investments. "There’s been a lot of money spent building (Internet businesses), and many have not seen returns."

Koogle, who will remain chairman, is the fourth executive to resign from Yahoo in the past month. The company is conducting a search for his replacement, and he will stay on until one is found. Koogle reportedly decided at a Yahoo strategy meeting in January that it was time to let someone else lead the company and take it into its next phase.

In the year of the Net’s discontent, the news sent a shudder through a punch-drunk sector, battered by a cooling economy and slumping ad revenue.

Yahoo shares, halted from trading most of the day because of the pending news announcement, sank 11 percent to $18.69 in after-hours trading.

Nonetheless, the news of Koogle stepping down is somewhat of a relief for Wall Street, said Safa Rashtschy, analyst with U.S. Bancorp Piper Jaffray. "Investors were waiting for something like this," he said. "Yahoo needs someone to lead it who’s from the media side, not technology."

Yahoo’s news renews speculation that it could become a prime takeover target. The company, once valued at $130 billion but now worth only a tenth of that, could be snapped up. Among possible suitors: Vivendi Universal, Viacom and Disney.

According to people close to the discussions, Yahoo recently held talks with Vivendi, Europe’s largest media group, about a possible alliance.

But the talks appear to have stalled. Now, any deal will almost surely be postponed until a new CEO is named.

Yahoo said revenue in the first quarter ended in March would come in at just $170 million to $180 million, well below the $227 million expected by Wall Street and below the $228.4 million it reported a year ago, according to Multex.com.

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