Wall Street not yodeling for Yahoo

NEW YORK (CNNMoney.com) -- It looks like the peanut butter has hit the fan at Yahoo.

Yahoo, the world's second-largest online search company, announced a drastic reorganization on Tuesday evening that apparently sets the stage for Chief Financial Officer Susan Decker eventually to succeed embattled Yahoo (Charts) CEO Terry Semel.

Wall Street wonders if Yahoo CEO Terry Semel could soon be on his way out...

...after Yahoo CFO Susan Decker was given a new role that could put her in line to take over as CEO.

Yahoo's stock has taken a big tumble this year, while the shares of its top rival, Google, keep climbing higher and higher.

The move comes shortly after a top Yahoo executive's internal memo, known as the "Peanut Butter Manifesto" because the exec argued Yahoo was being spread too thin, was leaked to the press.

Wall Street has been hoping to see some changes at Yahoo since the company has endured, to put it mildly, a tough year despite the fact that the online advertising business is booming. Yahoo's stock has fallen 30 percent, making it the sixth-worst performer in the S&P 500. Shares of top rival Google (Charts), on the other hand, have gained 17 percent.

But investors didn't applaud the management shake-up. Shares of Yahoo fell about 2 percent in early morning trading on the Nasdaq Wednesday.

One fund manager who sold his position in Yahoo several months ago said he approved of the reorganization but that Yahoo was still a wait-and-see story.

"What the change in management does is set up things for the next leg of growth. And Decker is a very strong executive," said Jason Schrotberger, co-manager of the Turner New Enterprise fund. "But we think there are better opportunities elsewhere," he said, adding that his fund recently boosted its stakes in Google and News Corp. (Charts), which bought social networking firm MySpace last year.

Several analysts were quick to give Yahoo credit for making some necessary changes. In addition to Decker's promotion (she is being put in charge of a new unit that focuses on advertising), Yahoo said that its Chief Operating Officer Dan Rosensweig and media chief Lloyd Braun will be leaving the company.

"The departures of both Dan Rosensweig and Lloyd Braun will be received positively by investors, in our view," wrote Jefferies analyst Youssef Squali in a note. Squali added that without Braun, who had a background in traditional media, Yahoo is likely to embrace more user-generated content as opposed to "proprietary media."

The company also put Chief Technology Officer Farzad Nazem in charge of a new technology unit and announced that it is looking for someone to lead another new division that will concentrate on building and maintaining the site's audience, with an emphasis on social networking offerings.

"It is a recognition of the organizational and operational challenges Yahoo has faced over the prior 12 months," wrote Citigroup analyst Mark Mahaney in a report Wednesday morning. "And it is very likely a necessary step that carries the potential for improved operational efficiencies at the company."

Still, some wondered whether the changes were just lip service.

"The moves appear more like a management reorganization and power shift than a cost reduction activity," wrote Marianne Wolk, an analyst with Susquehanna Financial Group on Wednesday.

And Stifel Nicolaus analyst Scott Devitt wrote in a report that he was uncertain "how the reorganization directly addresses ... the growing difference in economic returns of Yahoo's search business versus Google."

Google continues to hold a sizable market share lead in online search and in the past year has signed up some key advertising partners such as Time Warner's AOL unit and MySpace. (Time Warner (Charts) also owns CNNMoney.com.)

And Yahoo has suffered from some key missteps. The company delayed the launch of its new online search platform for advertisers, code-named Project Panama, from the third quarter to the fourth quarter of this year.

Yahoo also shocked Wall Street in September when it announced that sales would be at the low end of expectations owing to weakness in online auto and financial services advertising; several competitors later indicated that they were not seeing such softness.

To top it all off, Yahoo has been criticized by some for not being aggressive enough to go out and buy popular social networking and online video sites. Google bought online video kingpin YouTube in October. Yahoo has supposedly had on-and-off talks with MySpace competitor Facebook, however.

But Wolk argues that Yahoo could still be an attractive takeover target, not an acquirer, in her note. She said in her report that despite the company's recent struggles, it still boasts nearly 500 million users, strength in so-called branded advertising (i.e., graphical ads as opposed to text-based search) and the No. 2 position in search.

Microsoft (Charts), which owns the third-place competitor in search, MSN, has often been mentioned as a possible suitor for Yahoo.

So, barring a big turnaround in Yahoo's stock, these changes are unlikely to quell takeover scuttlebutt or rumors that Semel could also soon leave the company.

There has been some speculation that Semel, a traditional media veteran who worked for 24 years at Time Warner's Warner Bros., could eventually wind up succeeding Bob Wright as the CEO of General Electric's (Charts) NBC Universal unit. Wright is expected to retire soon.

And even though many on Wall Street think highly of Decker, who joined Yahoo in 2000 after serving as an analyst for 14 years with Donaldson, Lufkin and Jenrette (which is now owned by Credit Suisse), her promotion might not guarantee her the top spot at Yahoo, either.

Some bloggers have speculated that former Viacom CEO Tom Freston could be a candidate to take over for Semel. And another executive with prominent online experience, Ross Levinsohn, also could be available.

Levinsohn, who had headed News Corp.'s Fox Interactive Media unit and was instrumental in the company's decision to buy MySpace, announced last month that he was leaving News Corp.

In addition, Squali noted in his report that the management shuffle at Yahoo could actually create another problem for the company, namely finding an adequate replacement for Decker as CFO. She will serve as CFO until her successor is hired, however.

Finally, the management changes also probably won't have any impact on Yahoo's financial results in the near term. Yahoo is expected to report a relatively weak fourth quarter.

Wall Street is forecasting revenues, excluding sales it shares with affiliates, of $1.2 billion, up 14 percent from a year ago. By way of comparison, analysts are predicting that sales at Google, also excluding shared revenue, will surge 69 percent to $2.2 billion.

And Turner's Schrotberger said he is worried that because advertisers now have so many alternatives to Yahoo thanks to the popularity of sites like MySpace and YouTube, the increased supply of online ad inventory could put pressure on ad rates.

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Analysts quoted in this story do not own shares of the companies mentioned. Citigroup has performed investment banking for Yahoo.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.