Don't Get Excited Over Yang's Departure From Yahoo

Jan.17.12 | About: Yahoo! Inc. (YHOO)

Shares of Yahoo (NASDAQ:YHOO) have been up since Jerry Yang, the company's co-founder, announced that he is resigning from the board of directors. Many shareholders are enthusiastic about this and shares will most likely continue to appreciate.

Yang has received criticism for being a major obstacle for shareholders. In 2008, Microsoft (NASDAQ:MSFT) offered to buy Yahoo for $31 per share, which was a 62% premium over the closing price the day before. Yang was most notably known for blocking the deal, which caused Microsoft to eventually withdraw. Shareholders immediately tried to oust Yang as CEO, and ultimately replaced him with Carol Bartz. Yang believed that Yahoo had more value ahead. Unfortunately, Yahoo continued to see heavy competition, and Google (NASDAQ:GOOG) began to take even more market share away.

So why are shares up after hours? Well, the belief is that now with Yang out of the picture, the company could find ways to maximize shareholder value in the short-term, through either a sale of assets or the entire company.

However, I do not see this scenario happening at all. Yahoo management still believes it can grow revenue even with competition from companies like Google .

Yahoo recently hired Scott Thompson, who was an executive for PayPal. He was responsible for growing PayPal into a major online payment system. With the directors choosing to make Thompson their CEO, I believe the directors are still planning a turnaround with Yahoo remaining as a public company.

With the shares trading higher, I believe investors are thinking that Yang leaving will mean a chance for the company to sell itself. However, with the amount of scrutiny coming from shareholders, I believe management only made this change to show shareholders that they are making positive changes. If the shares continue to ride higher, I would recommend short-term investors to sell. Yahoo has very little intention to sell itself. While Yang leaving is a positive, it does not mean that the newly elected CEO will run to Microsoft or private equity firms for a buyout. Yahoo still has many obstacles ahead such as trying to compete with Google. Yang's departure is only short term closure for shareholders.

Disclosure: I am long MSFT.