Yahoo Inc. will fire at least 1,500 workers to cope with a crumbling economy that dented its third-quarter profit and turned up the heat on the slumping Internet company’s management as investors continue to stew over a missed opportunity to sell to Microsoft Corp. for US$47.5 billion.
The purge outlined Tuesday represents a 10% reduction in Yahoo’s payroll of about 15,000 employees. It’s the second time in nine months that it has resorted to mass layoffs in what so far has been an ineffectual effort to rebound from a financial funk that has left its stock price near a five-and-a-half year low.
Yahoo’s housecleaning, to be completed by the end of the year, provides the latest example of how a credit crisis that has already rocked banks and retailers is starting to rattle Silicon Valley, the nation’s high-tech heartland.
Online auctioneer eBay Inc. is jettisoning 1,600 jobs, while an array of startups are letting workers go to squirrel away more cash as venture capitalists become more cautious with their money. Even Google Inc., a company renowned for its free-spending ways, is starting to cut corners.
“We are going into what is very clearly a recession mode,” Blake Jorgensen, Yahoo’s chief financial officer, said in a Tuesday interview.
Yahoo felt the squeeze in the third quarter, as the company earned $54.3 million, or four cents per share. That was a plunge of 64% from $151.3 million, or 11 cents per share, at the same time last year.
Revenue rose 1% to $1.79 billion. After subtracting commissions paid to advertising partners, Yahoo said its revenue stood at $1.32 billion—about $50 million below analyst estimates.
Yahoo’s depressed stock price is particularly galling to stockholders, given that it had a chance to sell to Microsoft for $33 per share in May (it’s currently trading around $12).
But Microsoft withdrew its offer after Yahoo chief executive Jerry Yang balked at the price, arguing his turnaround plan would yield even bigger returns.
Yang’s rebuff is now looking like a horrible mistake, as online advertisers curtail their spending in anticipation of the worst recession in a quarter century.
Signalling it expects the turbulence to extend well into 2009, Yahoo plans to trim $400 million from its annual expenses of $3.9 billion before January.
Reflecting the downturn, Yahoo lowered its revenue estimates for the rest of the year. It now projects 2008 revenue of $7.18 billion to $7.38 billion—down from a forecast of $7.35 billion to $7.85 billion issued three months ago.
The downturn hasn’t derailed Yahoo’s biggest rival, Internet search leader Google, which last week reported a 26% increase in third-quarter profit.
Search advertising bolstered Yahoo during the third quarter, with revenue in that segment rising 17% to $438 million. But display advertising edged up just 3%, while ads that Yahoo shows on its partners’ websites plummeted 10% as bank and retailers curbed their spending.
