Business - Yahoo to cut 10% of its workforce

Miguel Helft

SAN FRANCISCO: Yahoo's business continued to falter in the third quarter, and the company said Tuesday that it would cut at least 10 percent of its work force, or about 1,500 workers, in the current quarter to reduce costs.

Yahoo said that its net income for the quarter fell 64 percent, 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.

With the turmoil on Wall Street and an economic downturn weighing on the online advertising business, Yahoo said revenue rose a sluggish 1 percent to $1.786 billion, from $1.768 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 jump.

The results fell slightly short of analysts' recently reduced expectations. On average, Wall Street analysts expected the company to report net income of 9 cents a share on net revenue of $1.37 billion. Yahoo also lowered forecasts for the rest of the year.

"As economic conditions and online advertising softened in the third quarter, we remained highly focused on our 2008 strategy to invest in initiatives that enhance not only our long-term competitiveness, but also our ability to deliver for users and advertisers even in this more difficult climate," Jerry Yang, Yahoo's chief executive, said in a statement.

He added: "We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity."

Yahoo said its goal was to reduces expenses by an annual rate of more than $400 million by the end of the year.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 job cuts are not necessarily going to brighten the mood of investors, they said.

"We have been disappointed to see so little movement, not just in headcount reduction, but in new directions for the company since Jerry Yang was made CEO," said Derek Brown, an analyst with Cantor Fitzgerald.

Yahoo cut roughly 1,000 jobs earlier this year, but a steady stream of new hires has left the company with slightly more than 15,000 employees, approximately the same number as at the beginning of the year.

Analysts said Yahoo was struggling in its two principal business segments, search and display advertising.

"Yahoo has been donating share in search to Google for years and that continues," said Ross Sandler, an analyst with RBC Capital Markets. "It has also been donating share to a whole host of ad networks in display advertising." Sandler also noted that Yahoo's audience is skewed toward older Internet users, a segment of the market whose growth is tapering off.

Many investors say that 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 Yang said it was too low.

Since then, Yang and his team have sought to put in place a string of alternatives, none of which has succeeded yet. In June, Yahoo signed a search advertising partnership with Google, which was intended to be put in place by early October. It was expected to bring in $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 scrutinizing it for the damage it could do to competition in search advertising, a market that Google dominates.

On Tuesday, Google's chief executive, Eric Schmidt, said the companies had agreed to continue talking with regulators. 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.

Yahoo has also been talking with AOL about a possible merger that would create a powerhouse in display advertising. But the companies have not been able to agree on price.

"We think it is not happening because there is a huge gap on the price," said Jeffrey Lindsay, an analyst with Sanford Bernstein & Company. Lindsay noted that a merger with AOL, whose business is also struggling, would not necessarily solve Yahoo's problems. To be successful from a financial standpoint, it would require deep cuts at the combined company, he said.

"Yahoo has had terrible trouble time reducing its own staff," Lindsay said. "AOL is a way forward but it would require tough discipline that Yahoo hasn't shown before. It is not a low risk option."

Yahoo's protracted struggles have disappointed investors who have continued to sell the company's shares. They closed on Tuesday at $12.07, down nearly 50 percent since the beginning of the year.