Will a Brain Drain Hinder Yahoo’s Recovery?

The departure of Yahoo Labs head, Prabhakar Raghavan, to rival Google (NASDAQ:GOOG) is the latest sign that the embattled Internet giant is facing a brain drain due to the ongoing struggles to turn around the company. ^[1] This comes at an especially bad time given that Yahoo (NASDAQ:YHOO) CEO Scott Thompson is aiming trying to undertake massive changes to revitalize the company.

See our full analysis for Yahoo’s stock here

The current investor tussle over who occupies Yahoo’s board has already gone a long way in creating uncertainty among the employees and investors with many senior level developers looking for new jobs.  This situation was only worsened due to Yahoo’s bungling of its sales for its Asian assets, which investors initially cheered thinking that a deal was imminent. Now uncertainty on this key issue is back.

Yahoo’s senior management may also face the additional problem of a lack of investment or clarity on its strategy from the top management. As reported by AllThingsD, Yahoo Labs was looking at possible budget cuts as the company desperately tries to re-channel its resources to mobile/social ventures. What Scott Thompson needs to do is to ensure that the situation does not turn into a vicious circle as the company needs innovative teams right now to drive its advertising dollars. We have a revised price estimate of $18 for Yahoo’s stock, which is roughly 24% above the current market price.

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1. Yahoo Labs Head Raghavan Departing to Google, AllThingsD, 4th March 2012 [↩]