Yahoo named PayPal President Scott Thompson as its chief executive, taking over on Jan. 9 from interim CEO Tim Morse, who will resume his role as chief financial officer.
Thompson's appointment comes five months after the firing of former CEO Carol Bartz as former Web powerhouse Yahoo struggles to compete with newer heavyweights Google and Facebook.
Thompson, who will also join Yahoo's board, had run PayPal, the online payments unit of eBay, since early 2008, and was previously its chief technology officer. Under his leadership Yahoo said PayPal increased its user base from 50 million to more than 104 million active users. PayPal processed $29 billion in payments in the third quarter of 2011.
Yahoo's shares were down nearly 3 % in early trading Wednesday and eBay shares fell more than 5 % as analysts said the online retailer would miss the respected Internet executive.
"It's probably a slight negative for Yahoo, because it makes the sale of the entire company to someone like Microsoft less likely," said Brett Harriss, an analyst at Gabelli & Co, which owns Yahoo shares. "He's certainly a competent manager and he's certainly been successful at PayPal."
EBay Chief Executive John Donahoe told staff in an internal memo that Thompson's move was a "shock." "Scott informed me Tuesday afternoon, saying that despite his passion for PayPal, this was an opportunity he felt he had to take," Donahoe said.
Yahoo recently has been discussing slashing its stakes in China's Alibaba Group and its Japanese affiliate as part of a share deal worth about $17 billion, according to sources familiar with the situation.
Alibaba has also hired a Washington lobbying firm in a sign that the Chinese e-commerce company would be willing to make a bid for all of Yahoo in the event that talks to unwind their Asian partnership fail.
Analysts said one of the first tasks for a new Yahoo CEO would likely be to oversee the sale of its Asian assets.
"A CEO who's respected in the Internet industry taking control and giving it a unified vision will be very helpful," said Jordan Rohan, an analyst at Stifel Nicolaus. "The sale of the Asian assets is what happens first and what happens afterwards is just a question of how they deploy the cash they get from the sale."
Yahoo Chairman Roy Bostock said in statement that Thompson will focus on the Yahoo's core businesses.
Yahoo, whose services include mail, search, news and photo-sharing, was a Web pioneer that grew rapidly in the 1990s but has been struggling to maintain its relevance and advertising revenue in the face of competition from newer rivals.
In 2008, Yahoo rejected an unsolicited takeover bid from Microsoft worth about $44 billion. Its share price was subsequently pummeled during the global financial crisis and its current market value is about $20 billion.
Co-founder Jerry Yang stepped down in late 2008 after being severely criticized by investors for his handling of the bid. The company cut thousands of jobs and later agreed to an advertising and search partnership with Microsoft.