Yahoo to Cut About 10% of Workers
SAN FRANCISCO — Yahoo was hurting long before the financial crisis got everyone worried about a global recession. Now its pain has become more acute.
Jerry Yang, chief executive and co-founder of Yahoo.
Yahoo said Tuesday that it would lay off at least 10 percent of its 15,000 workers as it tries to bring down its expenses. It said reduced marketing budgets had taken a bite out of its online advertising business, sending its net income for the third quarter tumbling by 64 percent.
The company also lowered its revenue projections for the remainder of the year and said it was too early to make forecasts for 2009.
The results come as strategic moves that Yahoo has been considering, including a search advertising partnership with its rival Google and a merger with Time Warner’s AOL unit, have gotten bogged down, leaving the company with few options but to cut expenses, analysts said.
“They just have to batten down the hatches, lighten the load and ride this thing out,” said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Company.
“Hopefully,” he added, “they will make it to the other side with their cash intact, presumably as a smaller and more efficient organization.”
Yahoo executives said events like the Beijing Olympics, the presidential campaign and the financial crisis delivered a surge of viewers to the company’s popular Web sites during the quarter.
However, Yahoo was not able to turn those extra visitors into dollars at the rate it had hoped, they said. The company said it had been especially hurt by a retrenchment among marketers who buy high-priced display ads, one of the mainstays of Yahoo’s business.
In an interview, Jerry Yang, a Yahoo co-founder and its chief executive, said the layoffs were a necessary step that would allow Yahoo to operate more efficiently and weather a downturn.
“Going through layoffs is a very tough thing, but I also think we are doing the right thing by keeping flexibility for the company,” Mr. Yang said.
While the cuts will affect all parts of the company, they will not be uniform, and Yahoo will continue to invest in some important projects, like a new advertising system and a new home page, he said. Yahoo might cut some of its services altogether, he said, but declined to name which projects may be headed for the chopping block.
The goal was to reduce annual expenses by more than $400 million before the end of the year, he said.
Yahoo said revenue rose a sluggish 1 percent to $1.79 billion, from $1.77 billion a year ago. Net revenue, which excludes commissions paid to advertising partners, was $1.32 billion, compared with $1.28 billion a year ago, a 3 percent increase. Analysts expected net revenue to be $1.37 billion.
Net income for the quarter fell to $54 million, or 4 cents a share, from $151 million, or 11 cents a share, a year earlier. Excluding the cost of stock options and other items, income was $123 million, or 9 cents a share, compared with 11 cents a share a year ago, in line with analysts’ forecasts.
Some analysts said that under Mr. Yang, who became chief executive in June 2007, Yahoo has been lurching from crisis to crisis and has been unable to outline a credible turnaround plan. The layoffs are not likely to address some of the problems plaguing Yahoo, which include a loss of market share to Google in Web search and to others in display advertising, they said.
“In our mind, it isn’t solely about cost cutting,” said Derek Brown, an analyst with Cantor Fitzgerald. “Unless the layoffs can lead to more rapid, more creative product introductions or more competitive wins, they won’t move the needle.”
Yahoo cut roughly 1,000 jobs this year, but new hires and small acquisitions since then have left the company with more than 15,000 employees, slightly more than at the beginning of the year.
Many investors say that Mr. Yang’s — and Yahoo’s — most significant mistake was to rebuff a $33-a-share buyout bid from Microsoft in May. Microsoft withdrew its offer after Mr. Yang said it was too low.
Since then, Yahoo signed a search advertising partnership with Google, which was expected to be in place by early October and to bring $250 million to $450 million in additional operating cash flow to Yahoo in the first year. But the deal has been held up by antitrust regulators, who are considering the damage it could do to competition in search advertising, a market that Google dominates.
The time allotted for the review was recently extended. A person briefed on the matter, who agreed to talk on condition of anonymity because of the confidentiality surrounding the inquiry, said lawyers from the companies and the Justice Department were discussing possible limits on the scope of the deal, like a cap on the number of ads that Google could place on Yahoo’s pages.
And Yahoo’s merger talks with AOL have failed to bear fruit.
“We think it is not happening because there is a huge gap on the price,” Mr. Lindsay said. A merger with AOL, which is also struggling, would not necessarily solve Yahoo’s problems, he said, and would require deep cuts at the combined company.
Yahoo’s protracted troubles have disappointed investors who have continued to sell its shares. They closed on Tuesday at $12.07, down nearly 50 percent since the beginning of the year. But shares rose in after-hours trading, following the earnings announcement.
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