Yahoo profit drops; at least 1,430 to lose jobs

The company's net income dropped 64 percent in the last year, and layoffs of at least 10 percent are coming by year's end. Annual savings: $400 million.

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Stephen Shankland
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Updated 3:20 p.m. PDT with further details from conference call.

Yahoo on Tuesday reported a 64 percent drop in net income for the third quarter, issued cautions about a weakening advertising market, and confirmed that layoffs are indeed on the way.

"As we saw the online ad market decline in the third quarter, I decided Yahoo needed to accelerate the process of getting more competitive," Chief Executive Jerry Yang said in a conference call. "We anticipate we will reduce headcount by at least 10 percent" by the end of the year.

With 14,300 employed at the end of last quarter, that means at least 1,430 are losing their jobs in 2008. And Yang indicated there could be further cuts in 2009.

For the third quarter, Yahoo reported net income of $54 million, down from $151 million in the year-earlier quarter. Excluding some items, the company's had revenue of 9 cents per share, meeting expectations of analysts surveyed by Thomson Reuters. However, revenue excluding commissions of $1.325 billion, a 3 percent increase, was less than the $1.37 billion that had been expected.


Yahoo said the layoff is the centerpiece of a new financial goal to cut its current annualized expenses of $3.9 billion by $400 million by the end of 2008. The company employed 14,300 at the end of the second quarter.

Other changes will come, too: Yahoo will relocate operations to lower-cost regions of the world, consolidate real estate, improve procurement, and standardize its infrastructure, Yang said.

The big issue is display advertising, which weakened overall for the company.

"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," Yang said in a statement. "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."

The balance of cost containment and weakening advertising showed Chief Financial Officer Blake Jorgensen's forecast about fourth-quarter results. "Given the weak economic climate, we're lowering the full-year revenue outlook but maintaining our operating cash and free cash flow outlook," he said.

Yahoo layoffs have been widely expected; the company hired Bain & Co. to evaluate its options and signaled that job cuts are one of several cost containment measures the Sunnyvale, Calif.-based company will undertake.

The Internet pioneer is under pressure. Microsoft's attempt to acquire Yahoo for a price that rose as high as $33 now looks even more notable given that Yahoo's stock has dropped to nearly $12. And the company is under pressure from the prevailing economic troubles, which many expect will cut spending on the graphical display ads on which Yahoo relies.


Yahoo also makes revenue from search ads, which many believe are more easily tied to actual performance measurements such as customer purchasing and therefore better able to weather the economic storm. But Yahoo's top rival, Google, makes vastly more on search ads, and a partnership under which Yahoo would show Google search ads is under heavy scrutiny by Justice Department antitrust regulators.

Jorgensen also said Yahoo was "disappointed" with its light revenue though pleased with the company's ability to keep that from hurting profitability.

"An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range. While we are disappointed with our results, we're pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year," Jorgensen said. "These efforts helped our adjusted operating cash flow come in above the midpoint of our outlook range for the quarter, despite significant investments in our strategic objectives. We have the balance sheet strength, liquidity, and free cash flow we need to continue to make progress on our core strategies as we address this slowdown."

President Sue Decker said display ads were weakest in the areas of finance, autos, real estate, and travel.