Analyst: Yahoo Layoffs No Surprise

A Yahoo analyst says the latest round of layoffs at the company comes as no big surprise, since "headcount reduction" was part of plans it laid out this spring. In a research note issued Thursday evening, RBC Capital Markets analyst Ross Sandler said Yahoo confirmed the layoffs, but that the cutbacks weren't at the 20% across-the-board level initially reported.

Yahoo itself put out a statement last night saying the 20% figure was "inaccurate." A subsequent report in the All Things D blog said layoffs would probably be closer to 10% and centered on the company's product organization led by Chief Product Officer Blake Irving. That would equate to about 650 employees being let go.

RBC's Sandler also suggested that the cutbacks would be nearer to 10%, although Yahoo would not disclose the proportion. "This news should come as no surprise, as Yahoo is over-staffed vs. its historical average and vs. the peer universe, almost any way you slice it. Additionally, these actions are in line with the plans laid out at analyst day back in May," he wrote.

Sandler explained separately that while Yahoo didn't specifically mention layoffs, discussion about streamlining and rationalizing costs in various ways pointed toward such a step. During Yahoo's third-quarter conference call, the company highlighted efforts that have reduced operating costs by $1.1 billion over the last two years, but gave no obvious indication that layoffs were ahead.

Asked whether the company was bloated and needed more headcount reduction, Yahoo CFO Tim Morse pointed out that costs were down 12% compared to last year and 23% from 2008. "Are we bloated? No, I don't think we're bloated," he said. "Is there more to go? Absolutely, there is more to go, and there is a whole lot more of shifting cost out of places we're investing today and into places that will generate better returns for us tomorrow."

Figures presented in the RBC report showed that Yahoo had revenue-per-head of $79,746 compared to an average of $226,958 for comparable companies including Google, Amazon and eBay. Underscoring that difference, Google this week announced it was giving all its 23,000 employees a 10% raise and a $1,000 bonus.

In his note, Sandler pointed out that Yahoo's current EBIDTA margin of 36% is well below its high of 42% in 2006, while net revenue has remained virtually unchanged at about $4.6 billion. Even with cutting $85 million in costs per quarter by outsourcing search to Microsoft, margins are still at 36%.

At the same time, Yahoo has been spending on acquisitions, in-housing data centers, increased staffing (up 7% year-over-year), and efforts to boost traffic, like its $100 million "You!" campaign. "We do not think Yahoo would lose a significant amount of revenue if it did clean up some areas of the operations," the RBC report concludes. It projects a 5% drop in revenue next year from the layoffs, which would help bring Yahoo's margin back to the 40% range.

Sandler calls the layoffs "long overdue" and says the move should be viewed positively by investors. But as of Friday morning, Yahoo shares were trading down slightly, at $16.55.

1 comment about "Analyst: Yahoo Layoffs No Surprise".
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  1. Mark Burrell from Tongal, November 15, 2010 at 1:25 p.m.

    just read their CEO had record pay. This seems to be more typical than ever. Cut the bottom, reward the top.

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