Yahoo to Cut 1,000 Jobs

By Eric Auchard, Reuters Print this article Print

Yahoo posted a drop in quarterly profit and forecast 2008 revenue below Wall Street forecasts as it cuts jobs and invests to shore up its Web advertising business.

SAN FRANCISCO/NEW YORK (Reuters) - Yahoo Inc posted a drop in quarterly profit on Tuesday and forecast 2008 revenue below Wall Street forecasts as it cuts jobs and invests to shore up its Web advertising business.

Shares in Yahoo fell nearly 11 percent in extended trading. Yahoo's revenue forecasts for the upcoming year disappointed investors, even though Wall Street analysts have already slashed their expectations of Yahoo's ability to increase Internet advertising revenue in a weakened U.S. economy.

The company warned that it faced "headwinds" in 2008 and outlined a plan to cut about 1,000 jobs. It also revised a deal with AT&T Inc that will cut into revenue this year. The restructuring will lead to better cash flow in 2009, it said.

"Yahoo is a company and a business in transition," said Cantor Fitzgerald analyst Derek Brown, who rates the stock neutral. "The payoffs are not likely to show up until at least the second half of this year or perhaps sometime in 2009."

Most advertising sectors, including autos, pharmaceuticals, telecommunications and packaged goods, are off to a solid start this year and are expected to enjoy growing online budgets during 2008, President Susan Decker said.

However, financial, travel, and retail advertisers -- sectors hit hard by the weakening economy -- suffered declines from a year ago, Decker said. She cautioned that: "We're obviously watching economic developments very closely."

Fourth-quarter profit fell more than 23 percent to $205.7 million, or 15 cents per share, from $268.7 million, or 19 cents per share, a year ago. Overall revenue rose 8 percent to $1.83 billion and revenue excluding payments to advertising partners rose 14 percent to $1.4 billion.

Analysts, on average, had forecast earnings per share of 11 cents on revenue of $1.41 billion excluding traffic acquisition costs, according to Reuters Estimates.

"(Fourth-quarter results) indicate they have already done some belt tightening from a cost standpoint," said Martin Pyykkonen, an analyst with Global Crown Capital.

But Yahoo's larger share of the corporate display ad market makes it vulnerable to spending pullbacks in a recession. Analysts expect archrival Google Inc to fare better in a downturn with its dominance of paid search, a form of marketing where advertisers pay when customers click on ads.


Chief Executive Jerry Yang predicted a tough 2008 as he pledged to reduce the company's 14,500 employees by nearly 7 percent. Job cut details will be announced in mid-February.

"While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009," Yang said in a statement.

"Looking to 2008, we are taking an aggressive investment posture," Yang told investors on a conference call held to discuss the quarterly results. "We're making profound, fundamental changes to virtually all aspects of our business."

One focus of investment in 2008 is on creating a large-scale network for buying and selling online advertising. Yang said these upgrades promise to "accelerate our overall advertising revenue growth by the time we exit 2008."

Yahoo forecast revenue excluding advertising affiliate payments of $5.35 billion to $5.95 billion for the full year. Analysts, on average, had forecast revenue of $5.54 billion to $6.40 billion for 2008, according to Reuters Estimates.

Separately, Yahoo said it has revised a key subscription revenue deal with AT&T, the largest U.S. phone company. Instead of receiving a cut of subscription fees for each broadband user AT&T signs up, Yahoo will share advertising revenue from Yahoo services that appear on AT&T Web sites, Internet TV and mobile phone services. AT&T counts 70 million mobile phone customers.

The companies did not disclose terms, but Wall Street analysts had expected a new deal would see AT&T slash the amount of subscription fees it shares with Yahoo in favor of less-consistent, but potentially more lucrative, ad revenue.

2008 revenue will suffer a decline of $150 million to $200 million compared with 2007 on revised broadband deals with AT&T and BT of Britain and Rogers of Canada, excluding payments to affiliated sites on which Yahoo sells advertising.

Yahoo will take a charge of $20 million to $25 million against first-quarter earnings to cover 1,000 or so job cuts. More than offsetting this is a gain of $450 million to $550 million Yahoo stands to receive on its share of the proceeds from its stake in recent Hong Kong IPO Alibaba.com

Yahoo shares fell to $18.56 in extended trading after closing at $20.81 on the Nasdaq. The stock is off 45 percent from a year-high level around $34 set in October.

(Editing by Braden Reddall)

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This article was originally published on 2008-01-30
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