San Francisco - Yahoo's leaders still have jobs despite investor misgivings about their decision making, but at least 1 500 workers will be laid off after the slumping internet company's profits tumbled yet again in the third quarter.
The 10% reduction in Yahoo's payroll of 15 000 employees served as another stark reminder of the challenges facing a management team led by Jerry Yang as the deteriorating economy casts even more doubts about the Sunnyvale, California-based company's turnaround plans.
Although Yahoo's third-quarter profit plunged 64%, the cutbacks announced on Tuesday are a small step in the right direction, said Cantor Fitzgerald analyst Derek Brown.
"But it seems like there is still a lot more work that needs to be done," he said.
Yahoo is bracing for a deep downturn likely to extend well into 2009 by trimming $400m from its annual expenses of $3.9bn. Besides shedding 1 500 workers during the next two months, Yahoo may close some of its US offices and assign more jobs to lower-paid contractors in other countries.
"We are going into what is very clearly a recession mode," Blake Jorgensen, Yahoo's chief financial officer, said in a Tuesday interview.
Yahoo's determination to rein in its expenses seemed to please investors, who have been disillusioned with the company's direction for years.
Yahoo shares gained nearly 7% in extended trading after ending the regular session at $12.07, down 79c.
The heat is on
But Yang and his lieutenants have a long way to go to justify Yahoo's decision to spurn Microsoft's takeover bid of $33 per share last May. Microsoft withdrew the offer after Yang balked at the price, asserting his management team was pursuing a strategy that would prove the company was worth than the software maker's $47.5bn bid.
"The heat is definitely still on Yang," said Canaccord Adams analyst Colin Gillis.
The purge outlined on Tuesday marks the second time in nine months that Yahoo has resorted to mass layoffs in what so far has been an ineffectual effort to rebound from a financial funk that has left its stock price near a 5-year low.
Yahoo is approaching these cutbacks much more aggressively than its last round of layoffs in February, when about 1 000 workers were cut loose. Within a few months, Yahoo's payroll had expanded back to where it was before the streamlining.
"I believe getting Yahoo more fit at this time will provide the flexibility necessary for navigating current conditions and strengthen our position for the future," Yang told analysts during a Tuesday conference call.
Yahoo's housecleaning provides the latest example of how a credit crisis that has already rocked banks and retailers is starting to rattle Silicon Valley, the nation's high-tech heartland.
Others cutting corners too
Online auctioneer eBay is jettisoning 1 600 jobs while an array of startups are letting go workers to squirrel away more cash as venture capitalists become more cautious with their money. Even Google, a company renowned for its free-spending ways, is starting to cut corners.
Yahoo felt the squeeze in the third quarter as its earnings dwindled to $54.3m, or 4c per share. That was down from $151.3m, or 11c per share, at the same time last year.
If not for nearly $67m in one-time expenses and a slightly higher tax rate, Yahoo said it would have made 9c per share. That figure matched the average earnings estimate among analysts surveyed by Thomson Reuters.
Revenue rose 1% to $1.79bn. After subtracting commissions paid to advertising partners, Yahoo said its revenue stood at $1.32bn - about $50m below analyst estimates.
Analysts have blamed much of Yahoo's past troubles to mismanagement, but the crumbling economy is now looming as the company's biggest headache as online advertisers curtail their spending in anticipation of the worst recession in a quarter century.
Like most internet companies, Yahoo relies on advertising for most of its profits.
Strengthen partnership
Reflecting the downturn, Yahoo lowered its revenue estimates for the remainder of the year. Now Yahoo projects 2008 revenue of $7.18bn to $7.38bn - down from a forecast of $7.35bn to $7.85bn issued three months ago.
But the turmoil has not derailed Google, which last week reported a 26% increase in its third-quarter profit.
Yahoo is more vulnerable to advertising cutbacks because its marketing system does not work as well as Google's and it is more reliant on billboard-type ads that are more difficult to sell in tough times. Google, in contrast, specialises in text-based ad links that cost advertisers only when the ads are clicked on.
Search advertising bolstered Yahoo during the third quarter, with revenue in that segment rising 17% to $438m. But graphic-rich "display" advertising edged up just 3% while ads that Yahoo shows on its partners' websites plummeted 10% as bank and retailers curbed their spending.
Yahoo hopes to boost its revenue by drawing upon Google's technology for some of the text ads shown on its website, but the proposed partnership is in limbo while the US Justice Department investigates whether the alliance would undermine competition. Together, Google and Yahoo control more than 80% of the US search advertising market.
Yang told analysts that Yahoo and Google are still trying to persuade US regulators to allow the companies work together, but did not specify a timetable for when the impasse might be resolved.
- AP