Company aims to increase profitability, prop up its deflated stock price, and focus on a smaller number of key areas, people close to the company say…
“Yahoo! Inc., owner of the most- visited U.S. Web site, will cut about 700 jobs as it reorganizes to compete with Google Inc., according to a person with knowledge of the plans…”
Sunnyvale, Calif., — U.S. Internet search-engine Yahoo! Inc., refocusing as it faces a tighter budget for 2008, is planning to lay off hundreds of employees in an effort to increase its profitability, prop up its deflated stock price and narrow the focus of its sprawling Internet portal to a smaller number of key areas, a source familiar with the plan said on Monday.
“The final number of people to be laid off from Yahoo’s work force of about 14,000 is yet to be, the source said.”
Yahoo spokeswoman Diana Wong declined to comment on a report published on the Silicon Alley Insider blog, which on Saturday said Yahoo has created a list of “1,500-2,500 jobs that may be eliminated in the next two weeks.”
Yahoo’s workforce stood at close to 14,000 at end-2007, up around 2,600, or 23 percent, from the 11,600 employed a year earlier, according to company filings. The company’s headcount had grown 16 percent in 2006 and 29 percent in 2005.
The source said the report significantly exaggerated the scale of the potential layoffs, the exact number of which is still being settled.
“There will be some reductions in the workforce,” the source told Reuters. “It would likely be in the hundreds.”
The company may announce the cuts around the same time as it reports earnings on Jan. 29, said the person, who declined to be identified because the firings have not been disclosed. Yahoo spokeswoman May Petry declined to comment. In a statement, the company said it will “eliminate some areas of the business.”
Yahoo is facing slowing growth under the onslaught of Internet colossus Google Inc. Even Yahoo’s executives concede that the company had become too bureaucratic and failed to keep innovating fast enough against myriad upstarts, including social networking giants Facebook Inc. and News Corp.’s MySpace, which have captured tens of millions of the Internet’s eyeballs.
“Yahoo Chief Executive Officer Jerry Yang began reorganization after taking over from Terry Semel in June.”
The layoffs would mark the most aggressive step yet by Yang, to revive the company’s fortunes since he took the reins last year. He has been under intense pressure from Wall Street investors to jettison underperforming units, in an effort to jack up Yahoo’s profits and its moribund shares.
“People right now are very skeptical about Yahoo and for good reason,” said Scott Kessler, an equity analyst at Standard & Poor’s in New York, who recommends holding onto Yahoo shares. “It has not consistently delivered what most would characterize as good financial performance.”
Company executives are still trying to determine exactly which areas will be cut. One person close to the discussions said a final plan, or perhaps a few alternative plans, would be submitted to the company’s board at a coming meeting. The plan’s final shape may be influenced by the company’s fourth-quarter financial performance, this person said.
“The source said Yahoo expects to end 2008 with the same number it had going into this year — close to 14,000 — which would suggest some selective hiring in focus areas offset by cutbacks in other businesses.”
Writing on Silicon Valley Insider, former Wall Street analyst Henry Blodget said Yahoo’s Yang was still deciding whether to go ahead with the layoffs — and could pull out of the plan if the stock price rebounded.
“We believe Yahoo should reduce headcount by at least a thousand people,” Blodget said, noting that for months, Sanford C. Bernstein analyst Jeffrey Lindsay has called on Yahoo to make steep job cuts of 15-20 percent to reinvigorate the stock.
Yahoo declined to comment directly about the pending layoffs, and instead issued a statement saying, “Yahoo has embarked on a multi-year transformation that includes making tough decisions about the business to help the company grow” and that the company “plans to invest in some areas, reduce emphasis in others and eliminate some areas of the business that do not support the company’s priorities.”
“Yahoo continues to attract and hire talent against the company’s key initiatives to create long-term stockholder value.”
The statement echoes a strategy sketched out in recent months by Yang, the company’s co-founder, who was appointed chief executive last summer amid growing shareholder dissatisfaction. After a 100-day review of the company, Yang said in October that Yahoo would focus on three areas: becoming a “starting point” for the most consumers on the Web; extending its advertising offerings beyond the Yahoo portal to sites across the Web; and open up Yahoo’s technology infrastructure to third-party developers and publishers.
“Company executives have said that to achieve its “starting point” goal, Yahoo would continue to invest heavily in areas like Internet search, e-mail, the Yahoo front page and the personalized home-page service MyYahoo, as well as news, finance, sports and recent acquisitions in online advertising, Right Media and BlueLithium.”
Some other areas that would be de-emphasized, that the company has already begun. Yahoo said it would phase out or consolidate services like photos, premium music, auctions, and Yahoo 360, a largely unsuccessful social network.
While those changes have resulted in the departure of some employees, most have been encouraged to apply for jobs elsewhere in the company. Some analysts have grown impatient with the pace of change and have called for more sweeping layoffs.
But to date, it has resisted calls by Wall Street analysts and some investors to take several more drastic steps including large-scale layoffs, outsourcing of its Web search business to Google or a potential merger with Microsoft Corp.
The last time Yahoo had sizable layoffs was in 2001, following the dot-com crash. Over the last year, the company added several hundred people, some through hiring and some through acquisitions of companies like the online advertising specialists Right Media and BlueLithium and the e-mail provider Zimbra.
Yang and other Yahoo executives have said recently that they believe that those acquisitions and a series of reorganizations have primed the company for a turnaround. But they have cautioned that financial results may not improve quickly.
They have also said they believe Yahoo can succeed as an independent company, amid growing speculation that the company could become a takeover target.
“Still, Yahoo remains a highly popular Web site with nearly 500 million users globally. The company continues to be profitable, albeit not enough to please investors.”
Yahoo’s sales rose 12 percent to $1.77 billion in the third quarter, compared with a 19 percent gain a year earlier. Sales at Mountain View, California-based Google gained 57 percent to $4.23 billion.
To close the gap with Google, Yahoo upgraded its search engine last year to include videos and Flickr photos in query results. This month, the company introduced an upgraded home page for mobile phones and said it will offer software to help outside developers build applications for handsets.
Yahoo’s predicament is reminiscent of its troubles in 2001, when the company was caught in the dot-com bust and was forced into a series of layoffs. At that time, Terry Semel, a Hollywood studio chief, and Yang’s predecessor, was called in to fix the Web portal, which faced many of the same criticisms as it does today.