San Francisco — Yahoo Inc., the Internet Company that early this year spurned a takeover bid from Microsoft Corp., announced plans on Tuesday to axe at least 10 per cent of its workforce to cope with a crumbling economy that dented its third-quarter profit falling to 64 per cent turning up the heat on the slumping Web company’s management as investors stew over a missed opportunity to sell to Microsoft Corp. for $47.5 billion.
The jobs cuts are worse than feared, the company declared that third quarter profits dropped by 64 per cent to $54.3 million compared with $151.3 million last year. It said revenues were 1.78 billion dollars in the third-quarter, an addition of only one per cent over the 1.76 billion dollars in the same period last year.
“As we witnessed 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.
This is the second time in nine months that Yahoo has regressed to mass layoffs in what so far has been an ineffectual effort to rebound from a financial funk that has left its stock price near a 5 1/2-year low.
The online ad market, dragged down by declining consumer spending and tighter credit, is casting pressure on Yang to slash costs. The purge described Tuesday represents a 10 per cent reduction in Yahoo’s payroll of about
15,000
employees, are part of a plan to save more than
$400 million
annually.
Yahoo also stated that it was preserving cash for acquisitions, fueling speculation that a deal to buy Time Warner Inc.’s AOL unit may be in the works.
“They have a great deal more they could cut,” Darren Chervitz, research director at Jacob Asset Management, said in an interview with Bloomberg Television. “This company over the years stacked up a lot of fat and bureaucracy in the organization.”
Yang said: “The measures we are adopting this quarter should deliver not only near-term benefits to operating cash flow, but should also substantially enhance the nimbleness and flexibility with which we compete over the long term.”
Yahoo said the dismissal is the focus of a new financial goal to cut its current annualized expenses of $3.9 billion by $400 million by the end of 2008.
Other changes will come, too: More job losses are also projected among Yahoo’s staff of contractors, which number a couple of thousand according to the company. It will also attempt to make savings in reducing the amount of property it holds. The company plans to 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 feeble economic climate, we are decreasing the full-year revenue outlook but maintaining our operating cash and free cash flow outlook,” he said.
“We are performing a deep review of our cost structure to identify more opportunities to enhance efficiency and build a stronger and more profitable Yahoo,” said Sue Decker, Yahoo’s president.
Yahoo, based in Sunnyvale, California, rose 85 cents, or 7 percent, to $12.92 in extended trading after the job cuts were announced. The shares, down 48 percent this year, had fallen 79 cents to $12.07 in regular Nasdaq Stock Market trading.
Yahoo’s housecleaning, to be concluded by the end of the year, provides the latest example of how a credit crisis that has already rocked banks and retailers is starting to rattle Silicon Valley, the nation’s high-tech heartland.
Online auctioneer eBay Inc. is throwing away 1,600 jobs while an array of startups are letting go workers to save more cash as venture capitalists become more cautious with their money. Even Google Inc., a company renowned for its free-spending ways, is starting to cut corners.
“We are going into what is very clearly a recession mode,” Blake Jorgensen, Yahoo’s chief financial officer, said in a Tuesday interview.
“The focus is to make sure we are better positioned to handle a long-term, protracted recession if that does occur,” Jorgensen said. “We are also making sure those costs get out of the system for good.”
In a bid to regain its fortunes, Yahoo has brought out several new products and entered into an advertising tie-up with Google but the deal has yet to receive a green light from US Justice Department anti-trust regulators.
The agreement with Google faces opposition from advertisers, rivals and consumer advocates, who say it will harm competition. The companies said this month they would delay the agreement until the government completes its review.
Google chief executive Eric Schmidt said Tuesday that Google and Yahoo had extended their talks with the Department of Justice regulators examining their proposed search advertising deal.
Yahoo is hoping to earn hundreds of millions of dollars from the deal with Google in the first year alone.
The news will also be disturbing for those who invested heavily in Yahoo’s stock, such as Carl Icahn and oil speculator T Boone Pickens, in the expectation that the company would be sold to Microsoft.
Under the circumstances Yang may face legal problems after the news that he turned down an offer of $40 per share from Microsoft last year.
Microsoft CEO Steve Ballmer said last week that a deal between his company and Yahoo might still make economic sense. There are no discussions now, Redmond, Washington-based Microsoft said. Yahoo spokesman Brad Williams declined to comment.