Confirming widespread speculation of impending layoffs, Yahoo said Tuesday it plans to cut 1,000 workers, or 7% of its workforce, in an effort to offset financial woes.
The Internet
giant disclosed the upcoming reductions during a fourth-quarter conference call in which it reported profits were down 23% from the year-earlier period. Yahoo executives didn't specify which of the
company's divisions would incur the cutbacks, but said that a targeted "jobs realignment" would start by mid-February.
"This is a necessary next step in our transformation," Yahoo Chief
Executive Jerry Yang said during the conference call. Analysts had estimated layoffs ranging from 700 to 2,500 in the days leading up to the earnings call.
Yahoo reported a fourth-quarter profit
of $205.7 million, or 15 cents a share--down from $268.7 million, or 19 cents a share, a year ago. Revenue rose 14% to $1.4 billion, excluding traffic acquisition costs (payments to advertising
partners), slightly below analysts' estimates of $1.41 billion.
Still, Yahoo beat analysts' projected earnings of 11 cents per share.
Yahoo has been under intense pressure from Wall Street
to shake up its business in the face of a losing battle with Google over search and increasing competition from social networking sites such as Facebook and MySpace. After replacing Terry Semel as CEO
last summer, co-founder Jerry Yang outlined a three-prong strategy in October to make Yahoo the start page for most Internet users, a "must buy" for advertisers, and creating industry-leading
platforms.
Sounding an upbeat note, Yang said Tuesday that Yahoo was making good progress on those goals. "Our efforts to build a large-scale, premiere display advertising network and improve
search monetization are beginning to pay off," he said. In particular, he pointed to 20% year-over-year growth in its display advertising during the quarter and a 30% increase in search revenue. The
latter follows the rollout of its new Panama search platform during 2007.
Regardless, Yahoo continues to lose ground to Google. Yahoo's share of search spending dropped by 25% during the fourth
quarter from the year-earlier period, falling from 24.1% to 17.9% of total search dollars, according to data released Tuesday by search engine marketing firm Efficient Frontier.
Google,
meanwhile, increased its stranglehold on search, going from a 70.5% to a 76.6% share. The company captured nearly all of the search spending growth in the fourth quarter of 2007, compared to the
year-earlier quarter. Some analysts have suggested that Yahoo give up on competing with Google on search altogether, outsourcing that function to its key rival instead.
Yahoo on Tuesday also
announced an expanded partnership with AT&T spanning broadband Internet access and mobile phones. Under the deal, Yahoo would power a new AT&T Web portal and provide search and display for AT&T
subscribers on mobile devices and PCs.
Yahoo began restructuring its carrier agreements last year from fee-based deals to revenue-sharing arrangements. While Yang said the new agreements would
drive long-term growth, the switch to ad-sharing deals is expected to cost Yahoo $150 million to $200 million in 2008.
Assuming oversight of the company's engineering challenges will be Aristotle
Balogh, named Tuesday as Yahoo's new chief technology officer. Balogh, formerly CTO for Verisign, will manage all of the company's technology operations and report directly to Yang.
Looking ahead
to 2008, the Yahoo CEO acknowledged that while the company "continues to face headwinds this year," he believes the company will return to double-digit cash flow growth by 2009. Yahoo had an increase
in free cash flow of 6% from 2006 to 2007.
Yahoo expects revenue this year to be $5.35 billion to $5.95 billion, with growth estimated in the mid-teens. Operating cash flow is projected at $1.72
billion to about $2 billion.
Yang and other Yahoo executives declined to predict how the broader economy and recession fears might impact the company's business in 2008. "We're not in the
business of prognosticating the economy," said Yang. "What we are seeing so far is an online ad market that continues to grow."
However, Yahoo President Sue Decker allowed that the company had
seen "pockets of weakness" during the fourth quarter in advertising categories such as financial services, travel and retail. Analysts have speculated that Yahoo could be hit disproportionately hard
by a downturn in such sectors because of its heavy reliance on display advertising. But Decker said the company was encouraged by revenue growth in other areas such as search to help offset any
potential slowdown in display advertising.
The company also said that better integrating display and search advertising on Yahoo was a key priority for 2008.
Both Yang and Decker reiterated
ongoing efforts to bolster key start pages within Yahoo and scrap non-performing properties such as Yahoo 360, Brand Universes, Yahoo Photos, and Yahoo Direct.
By contrast, the properties it is
concentrating most heavily on improving are the home page, search, MyYahoo, Yahoo Mail, and mobile. These properties in turn help drive traffic to its news, finance and sports start pages. The
company's goal is to increase traffic to its key pages by 15% each year.
Decker said Yahoo's page views continued to grow at double-digit rates in the fourth quarter. She also noted that the
company plans to use visits rather than page views or unique users as its "most critical" metric.
Yahoo's stock closed Tuesday at $20.81, down almost 40% from its 52-week high of $34.08. In after
hours trading, the stock had fallen another 10% to $18.72.