Street hasn't freaked (yet) over Yahoo executive departures

But lack of investor reaction may signal something worse -- resignation

Wall Street's reaction Thursday to the continuing exodus of talent from embattled Internet pioneer Yahoo (NASDAQ: YHOO) wasn't great -- shares fell 17 cents, or 1.2 percent, to 14.17. But it could have been a lot worse. In fact, Yahoo shares dropped more than that on two other days in September alone -- a month in which, it should be noted, shares actually gained 8 percent.

So the street didn't freak out over news that three more high-level executives are leaving the company (though Friday beckons). You can interpret that in a couple of ways, the first of which is favorable to Yahoo:

1) Yahoo's a huge company with a lot of talent and, short-term disruptions aside, investors are relatively confident that other people can effectively step into those important roles.

2) Investors have seen this movie before -- other Yahoo executives have departed over the past year -- and aren't surprised, never mind shocked.

I strongly suspect it's the latter, and that doesn't bode well for either Yahoo's share price or embattled CEO Carol Bartz's tenure.

Since Bartz was named chief executive of Yahoo on January 13, 2009, the company's stock has gained 17 percent (it closed at 12.10 on the day of the announcement). Better than being down for sure, but during that same time frame Google shares are up 67 percent (see comparison chart). Investors tend to notice things like that.

And while it's true that Google shares have fallen 15 percent in 2010 -- about the same as Yahoo -- the search giant's stock began the year at close to a two-year high.

The number that tells the real story, however, is revenue growth. Yahoo's revenue for the first two quarters of fiscal year 2010 was $3.2 billion, down 11.5 percent from the first two quarters of fiscal year 2008. Google's revenue for the first two quarters of this fiscal year was $13.6 billion, up 29 percent from the same period two years ago. Google is growing; Yahoo is stagnating. And there's nothing on the horizon to lead Yahoo shareholders to believe anything will change dramatically in the company's favor.

Granted, Yahoo's earnings have been up, though more so in Q1 than Q2. But that's in large part because Yahoo has been cutting expenses -- laying off workers, shutting down unprofitable properties. No doubt, cutting costs is part of running a healthy business. But you can't keep cutting your way to growth. It doesn't work. Not only that -- and I'm sorry, this is just true -- cutting costs and laying off employees is easy, as is talking tough and swearing. The first one will impress Wall Street, up to a point. The latter two are meaningless, even pathetic.

Shareholders are getting impatient, and Bartz is feeling the pressure. She's been pushing back, arguing that she needs more time. I'm not sure how much more time she has. Yahoo has yet to figure out a strategy to compete effectively with either Google or Facebook. And the gap between those two and Yahoo is widening. All the memos in the world urging employees to "stay calm" -- as Bartz sent out Thursday -- aren't going to change that. And neither are F-bombs.

(Also see Maybe Yahoo just can't be fixed.)

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