With business slowing, the company has reportedly frozen hiring and may announce fresh job cuts.
Yahoo has frozen new hiring and may be forced to lay off existing employees, according to AllThingsD.
Word has reportedly come down not to fill the hundreds of job openings currently available as a first step toward cutting costs. As second step, layoffs of current support staff are expected to be "small and selective," though details are still being worked out.
After a year marked by weak quarterly revenue, takeover talk, and the ouster of former CEO Carol Bartz, Yahoo managed to deliver third-quarter results higher than forecast.
But Wall Street is once again anticipating shaky results when Yahoo delivers its fourth-quarter report next week. Analysts are looking for a drop in revenue to $1.19 billion compared with $1.5 billion a year ago, according to the San Jose Business Journal.
Sources told AllThingsD that the company will likely show further weakness in its key businesses and customer usage.
Yahoo has also started 2012 with some management shakeups.
Former PayPal president Scott Thompson took the reins as CEO earlier this month, while co-founder and former CEO Jerry Yang quit the board and severed all related roles with Yahoo this past Tuesday. Other members may also exit the board, forcing the company to scramble for replacements.
Hedge fund manager Daniel Loeb, who owns five percent of the company, may soon kick off a proxy fight to force further management changes. Loeb had previously been calling for Yang to resign and has been pushing for the ouster of other board members.
At the same time, the Alibaba Group is reportedly trying to drum up billions of dollars in an effort to acquire all or part of Yahoo. But such a move may be tricky to pull off.
Though it's been open to offers, Yahoo has so far rejected any takeover attempts. The company also owns 40 percent of Alibaba itself. Still, with investors unhappy and layoffs looming, Yahoo may be forced to more seriously consider a bid from the right suitor.
A Yahoo spokeswoman said that the company doesn't comment on rumor or speculation.