Yahoo announces departure of COO and key Marissa Mayer hire Henrique de Castro

Yahoo CEO Marissa Mayer is cutting loose her top lieutenant in a possible sign that the Internet company's efforts to revive its long-slumping advertising sales aren't paying off.

Wednesday's surprise announcement of the departure of Yahoo's chief operating officer, Henrique de Castro, represents a setback for Mayer, who signed him to a $58 million deal just 15 months ago to help her lure more advertisers to a company that has been struggling to compete against Google Inc. and Facebook Inc. in the race for online marketing dollars.

Yahoo Inc. declined to comment on the reasons for de Castro's abrupt exit. Mayer didn't name his replacement.

It's doubtful de Castro would be leaving if he were bringing in the revenue that Mayer envisioned, said BGC Financial analyst Colin Gillis.

"This was one of her key hires and he is already gone," Gillis said. "It doesn't look good."

Mayer, who knew de Castro from the days when both executives worked at Google, will likely be questioned about what went wrong when she reviews Yahoo's financial results for the fourth quarter, scheduled to come out Jan. 28. The Sunnyvale, California, company hasn't warned that it missed its revenue forecast for the three-month period ending in December, an indication that Yahoo must have at least been reasonably close to hitting that financial target set by Mayer. Yahoo had projected fourth-quarter revenue of about $1.2 billion after paying commissions to its ad partners, unchanged from the previous year.

De Castro, 48, will leave Yahoo with much of the money and stock that he got when Mayer lured him to California from a Google advertising job in Europe. His severance package includes $20 million of restricted stock that wasn't scheduled to fully vest until late 2016. He also will receive $1.2 million to cover the next two years of his salary. His rights to another batch of restricted stock valued at $9 million also have vested.

Although de Castro's hiring turned out to be an expensive mistake, Mayer is unlikely to face a harsh backlash from Yahoo stockholders who have made a lot of money since she defected from Google in July 2012.

Yahoo's stock has nearly tripled in value since Mayer's arrival, even though the company's revenue hasn't increased under her leadership. The company's shares dipped 7 cents to close at $41.07, then slipped another 29 cents in Wednesday's extended trading.

Mayer has been benefiting from a $1 billion investment in Chinese Internet company Alibaba Holding Group that was engineered in 2005 by Terry Semel and Jerry Yang, two former Yahoo CEOs who stepped down as the company's stock plunged.

Yahoo reaped a $7.6 billion windfall by selling a portion of its Alibaba holdings shortly after Mayer took over and still retains a 24 percent stake in the Chinese company. Many investors have been buying Yahoo stock as a way to get a piece of privately held Alibaba, whose revenue and earnings are growing rapidly as it prepares to go public.