Yahoo disappoints, to cut jobs

CEO Jerry Yang says company faces 'headwinds' this year. Struggling search engine plans 1,000 job cuts in February. Stock sinks on weak 2008 sales guidance.

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By Michal Lev-Ram, Fortune reporter

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Yahoo CEO Jerry Yang is faced with the unenviable task of trying to catch Google in online search.

NEW YORK (CNNMoney.com) -- Search engine Yahoo announced it would lay off 1,000 employees by mid-February, even as it reported fourth quarter earnings Tuesday that beat expectations.

During the company's conference call with analysts, chief executive Jerry Yang warned that the company faces "headwinds" this year and confirmed the upcoming layoffs, which had been rumored for the past week.

Yang said the company would make the job cuts as part of a "workforce realignment." The company has 14,300 total employees.

The stock plunged more than 10% after-hours on the news.

Yahoo's sales came in at $1.8 billion, up 8% from a year ago. Excluding advertising sales that Yahoo shares with its partners, the company reported revenue of $1.4 billion, roughly in line with Wall Street's expectations of $1.41 billion, according to estimates from Thomson First Call.

The company reported net income of $206 million, or 15 cents per share. While that was down 23% from a year ago, profits did beat analysts' forecasts for 11 cents per share.

For the full year, Yahoo's revenue, excluding ad sales it shares with partners, came in at $5.11 billion, up 12% from a year ago. Total sales rose 8% to $7 billion. Full-year net profit was $751 million, a 12% decrease from 2006.

But Yahoo also said it expects 2008 annual revenue, excluding sales shared with partners, of anywhere from $5.35 billion to $5.95 billion. Wall Street had been expecting sales of $5.9 billion before the report.

"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 written statement.

Yahoo is the number-two search engine in the world. But it lags arch rival Google by a wide margin. Google (GOOG, Fortune 500) reports its own fourth-quarter results Thursday. Yahoo also faces competition from social networking sites like Facebook and News Corp (NWS, Fortune 500).-owned MySpace. The company's own attempt at a social network, called 360, flopped.

Yang, who replaced Terry Semel as CEO last June, promised investors a 100-day review of the company shortly after taking over. Some analysts have said that investors are growing impatient with Yahoo as it continues to lose ground to Google and others. To top of page

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