Yahoo Plans Job Cuts as Profit PlungesYahoo Inc. announced plans to lay off at least 10% of its work force, as the struggling Internet company posted a 64% drop in profit and eked out a slight revenue increase in its third quarter.
The new layoffs, Yahoo's second major round of cuts this year, amount to at least 1,500 of Yahoo's roughly 15,000 full-time employees.
The Sunnyvale, Calif., company's stock -- which has nearly halved so far this year -- rose 5.2% in after-hours trading to $12.70, from its 4 p.m. Nasdaq close of $12.07. Investors appeared placated by Yahoo's plans to cope with a weak economy with cost cuts and by signs that an ad-spending slowdown hasn't derailed Yahoo's business. "Management is at least trying," said Youssef Squali, an analyst with Jefferies & Co.
But the results were tempered by notes of caution. Yahoo lowered its annual revenue guidance to a range of $7.18 billion, from its previous forecast of $7.35 billion. The company also narrowed its operating-income guidance.
"An increasingly challenging economic climate and softening advertising demand" were to blame, said Yahoo's chief financial officer, Blake Jorgensen, adding that the company was "disappointed" with results.
Yahoo posted net income of $54.3 million, or four cents a share, for the quarter ended Sept. 30, down from $151.3 million, or 11 cents a share, in the same quarter last year. Revenue increased 1.1% to $1.79 billion.
On a call with analysts, Yahoo executives said results were dragged down by a continued weakness in display ads -- the graphical or "banner" ads that appear on Web pages -- from large brand advertisers, one of the company's most important revenue streams.
When will Yahoo realize hat banner ads have lost much of their impact. Top third banner ads often "leave the screen" when users interact with the page. Yahoo has been trying to counter this flaw with new intrusive forms of banners hat pop out or slide into the screen interfering with the content of the page. Advertisers are less likely to sponsor obtrusive forms of banner advertising that could result in poor brand impressions and actually sour users on the brands involved prior to purchase.
Mobile SEO and new advertising programs for mobile phones have recently been rolled out by Yahoo. Mobile Phone advertising programs could be a significant growth area for Yahoo in the coming months.
World-wide revenue for banner ads rose only 3%, down from double-digit growth in the second quarter. Yahoo President Susan Decker acknowledged that demand from premium-brand advertisers was "mostly weaker than anticipated" in the U.S., while international growth slowed more than expected.
Search revenue from Yahoo-owned and operated sites grew 17%, which was relatively steady with last quarter. Yahoo announced no new plans or startegies to help grow their search advertising revenues.
Yet Yahoo executives stressed that their plan to reverse years of disappointing growth is working despite a tough environment. "I am encouraged that most advertisers who are still spending in this environment are spending with Yahoo," said Chief Executive Jerry Yang.
Mr. Yang said the layoffs and other cost-cutting plans would reduce the company's annualized costs by more than $400 million before the end of 2008.
In an interview, he added that the cost cutting would likely coincide with broader organizational changes that "remove a number of layers" in the company.
Mr. Yang declined to comment on the progress of the Department of Justice's review of Yahoo's search agreement with Google Inc. beyond stating that Yahoo continued to have "very detailed conversations with regulators."
So far, those talks have failed to result in an agreement that would allow the controversial search-ad deal to proceed. The Justice Department continues to build a possible lawsuit to stop the deal, which Yahoo hopes will help generate hundreds of millions of dollars in revenue. In the event of a suit, one or both of the companies could walk away.
