No Quick Fix For Yahoo’s Woes

Yahoos financial funk deepened at the end of 2007, prompting the slumping internet icon to draw up plans to lay off as many as 1000 workers.

The Sunnyvale-based company disclosed the upcoming 7 per cent reduction in its 14,300-employee work force on Tuesday while reviewing a 23 per cent drop in fourth-quarter profit and a cautious 2008 outlook.

The bad news sent Yahoo shares skidding to their lowest levels in more than four years.

In a prepared statement, Yahoo Chief Executive Jerry Yang warned of looming "headwinds," indicating that the companys tortuous turnaround efforts arent likely to pay off this year.

"Im surprised by how slowly they seem to be moving," said Cantor Fitzgerald analyst Derek Brown. "Yahoo still has quite a bit of work ahead."

Yahoo shares dropped $US2.09, or more than 10 percent, in extended trading on Tuesday after finishing the regular session at $US20.81, up US3 cents.

The companys market value has plunged more than 50 per cent since the end of 2005, wiping out $US35 billion in shareholder wealth.

Yang, Yahoos co-founder, took over as CEO seven months ago in an attempt to shake things up, but his overhaul hasnt impressed Wall Street so far. The mass firings represent Yangs most dramatic move yet.

"This is a necessary step in our transformation," Yang said during the conference call.

Yahoo didnt specify which areas of its operations will be trimmed in the companys biggest purge since jettisoning 650 workers in the aftermath of the dot-com bust seven years ago.

Management indicated some employees whose current jobs are eliminated may be offered new assignments in other parts of the company. Further details are supposed to be released by mid-February.

Yahoo expects to absorb a first-quarter charge of $US20 million to $US25 million to pay for severance costs and other expenses incurred in the layoffs.

The cost cutting could reduce Yahoos annual expenses by more than $US100 million, helping offset some of the loss in revenue the company expects from a re-negotiated partnership with AT&T to provide high-speed Internet service.

Under a new deal announced Tuesday, Yahoo and AT&T will share revenue generated through online advertising. Previously, AT&T had paid Yahoo a portion of the fees collected from subscribers to their cobranded Internet service.

Analysts had estimated that arrangement generated about $US250 million in annual revenue for Yahoo.

To ease the pain of the transition, Yahoo will receive an upfront payment of $US300 million to $US400 million from AT&T.

Yahoo hasnt stopped making money. But the companys 2007 profit fell 12 per cent to $US660 million even though advertisers spent more than ever on the internet, where Yahoo still draws one of the webs largest audiences.

The bulk of that additional ad revenue has been pouring into Internet search leader Google, a company that was smaller than Yahoo just three years ago.

Yahoo also has been struggling to attract teenagers and young adults who are gravitating to more trendy online hangouts like Facebook.com and News Corp.s MySpace.com.

While grappling with those challenges, Yahoo earned $US205.7 million, or US15 cents per share, during 2007s final three months, down from net income of $US268.7 million, or US19 cents per share, at the same time in 2006.

Reflecting the gloomy aura hanging over Yahoo, analysts had prepared investors for even worse erosion. Analysts, on average, had projected earnings of US11 cents per share for the period.

Yahoos revenue for the period totaled $US1.83 billion, an improvement of 8 per cent over $US1.7 billion in 2006.

AP

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