Yahoo to Cut 1,000 Jobs

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

Shares in Yahoo fell nearly 11 percent in extended trading. Yahoo’srevenue forecasts for the upcoming year disappointed investors, eventhough Wall Street analysts have already slashed their expectations ofYahoo’s ability to increase Internet advertising revenue in a weakenedU.S. economy.

The company warned that it faced "headwinds" in 2008 and outlined aplan to cut about 1,000 jobs. It also revised a deal with AT&T Incthat 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 CantorFitzgerald analyst Derek Brown, who rates the stock neutral. "Thepayoffs are not likely to show up until at least the second half ofthis year or perhaps sometime in 2009."

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

However, financial, travel, and retail advertisers — sectors hithard by the weakening economy — suffered declines from a year ago,Decker said. She cautioned that: "We’re obviously watching economicdevelopments 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, ayear ago. Overall revenue rose 8 percent to $1.83 billion and revenueexcluding payments to advertising partners rose 14 percent to $1.4billion.

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

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

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


Chief Executive Jerry Yang predicted a tough 2008 as he pledged toreduce the company’s 14,500 employees by nearly 7 percent. Job cutdetails will be announced in mid-February.

"While we will continue to face headwinds this year, we believe thatthe moves we are making will help us exit 2008 stronger and morecompetitive and return to higher levels of operating cash flow growthin 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 quarterlyresults. "We’re making profound, fundamental changes to virtually allaspects of our business."

One focus of investment in 2008 is on creating a large-scale networkfor buying and selling online advertising. Yang said these upgradespromise to "accelerate our overall advertising revenue growth by thetime 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 revenuedeal with AT&T, the largest U.S. phone company. Instead ofreceiving a cut of subscription fees for each broadband user AT&Tsigns up, Yahoo will share advertising revenue from Yahoo services thatappear 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 hadexpected a new deal would see AT&T slash the amount of subscriptionfees it shares with Yahoo in favor of less-consistent, but potentiallymore lucrative, ad revenue.

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

Yahoo will take a charge of $20 million to $25 million againstfirst-quarter earnings to cover 1,000 or so job cuts. More thanoffsetting this is a gain of $450 million to $550 million Yahoo standsto receive on its share of the proceeds from its stake in recent HongKong IPO

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-highlevel around $34 set in October.

(Editing by Braden Reddall)

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