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Yahoo Chief Executive Carol Bartz responds to a question during her appearance at the Web 2.0 Summit in San Francisco, California in this November 16, 2010 file photo.

ROBERT GALBRAITH/Reuters







Yahoo Inc. got a nice bounce in the market on Wednesday after Carol Bartz was dropped as chief executive – but few analysts expect much more from the stock for a while.

Yahoo shares rose to end 5.4 per cent higher at $13.61. This put it below the $14 to $18 range it has traded at over the past two years. Will the stock go back up with the change in management? Or is Bartz's departure just another sign of trouble for the long-troubled Web publishing pioneer?

THE ISSUE

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The end of Carol Bartz's rocky two-year tenure as chief executive at Yahoo and replacement by an interim chief suggests the company's turnaround is still down the road. The question is what's next for its shares.

SELL YAHOO

Yahoo faces a difficult task in retaining customers and must make critical decisions on how to optimize its large stakes in China's Alibaba, Yahoo Japan and Japanese mobile company Softbank.

Analysts estimate Yahoo's Asian assets alone are worth anywhere from 50 per cent to 70 per cent of Yahoo's market capitalization. But how to monetize those holdings is a story that needs to be told.

"While measures to unlock value, divest assets, and/or downsize the cost base may be forthcoming, we simply cannot recommend the shares until we understand more about this company's future position," Macquarie Capital told clients.

It is hard to value Yahoo's Asian assets or when a divestiture may occur, and difficult to gauge tax implications of such a deal, Macquarie explained.

In hindsight, Microsoft's $47.5-billion proposed takeover offer in 2008 looks like a good deal – although it came in a much stronger stock market. The company's market cap has dropped to about $17-billion.

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"We think the challenges at the current Yahoo are likely beyond any one person's ability to perform some magic and reinvigorate growth in the company," analyst Martin Pyykkonen at Wedge Partners told investors.

HOLD YAHOO

JPMorgan Chase & Co., which has a "neutral" rating on Yahoo shares, takes a different tack.

"We expect shares to respond favourably in the near-term, but follow-through will likely be based on whether Yahoo is truly looking for another CEO to return the company to growth or whether it's focusing on strategic opportunities given Yahoo's low valuation and complex structure," the firm said in a research note.

JP Morgan noted that investors have become frustrated with Yahoo in recent years, and that its board is considered slow-moving. Finding a new CEO and rebuilding the company could take up to 3 years, the bank said, delaying any revival in the shares.

BUY YAHOO

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Scott Kessler, an analyst with Standard & Poor's Equity Research said he is not surprised by the news, saying Bartz had been criticized for not turning the company around.

"We think this change makes sense and should be a positive for the stock," he wrote in a note where he reiterated his "buy" rating on the company. The chief executive on an interim basis is Yahoo's chief financial officer Tim Morse.

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