Yahoo slashes 10% of workforce

The beleaguered Internet company says it will layoff more than 1,500 employees in the fourth quarter; sales and profits for third quarter match forecasts.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Yahoo announced Tuesday that it plans to cut at least 10% of its workforce, or more than 1,500 employees, in the fourth quarter in an effort reduce costs.

The struggling Internet company also announced sales for the third quarter that were roughly in line with Wall Street's forecasts and earnings that matched expectations.

Yahoo had 15,200 employees at the end of the third quarter. The much-anticipated round of layoffs comes on the heels of another 1,000 job cuts in late January.

"We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity," said Yahoo co-founder and CEO Jerry Yang in a written statement.

"The steps we are taking this quarter should deliver both near-term benefits to operating cash flow, and substantially enhance the nimbleness and flexibility with which we compete over the long term," he added.

In a conference call after the results were announced, Yang said the company was working to reduce costs in other ways than just slashing jobs, including relocating offices and consolidating real estate. "We are identifying ways we can operate more efficiently," he said.

Yahoo (YHOO, Fortune 500) reported revenue of $1.79 billion in the quarter ended Sept. 30, an increase of 1% from the $1.77 billion in the same quarter one year ago.

Excluding commissions paid to advertising partners, Yahoo posted sales of $1.33 billion, slightly lower than the $1.37 billion in sales that analysts polled by Thomson Reuters expected on this basis.

Yahoo reported net income of $54 million, or 4 cents per share, a decline of 51% from a year ago. Excluding certain one-time charges, Yahoo recorded profits of $123 million, or 9 cents per share, which was in line with what analysts had forecast on this basis.

Yahoo's stock ended the regular trading day down 79 cents at $12.07 but rose 7% in after hours trading.

The report provided "no more negative surprise beyond what we had already expected," said Sandeep Aggarwal, Senior Internet Analyst at Collins Stewart.

And given the weak economy, Yahoo's report "could have been a lot worse," noted Jeffrey Lindsay, senior analyst with Sanford C. Bernstein & Co.

Lindsay said that Yahoo's decision to reduce costs, mostly through massive job cuts, has the potential to buoy the company through the hard times. "If they really do take the staff numbers down for real, that will have a very beneficial effect," said Lindsay.

Yahoo's stock has been battered in recent months due to concerns that companies would cut their online advertising spending as a result of the economic slowdown. Executives admitted that Yahoo's performance has been taking a hit from the sluggish economy.

"An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range," said Yahoo Finance Chief Blake Jorgensen in a statement.

"While we are disappointed with our results, we're pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year," he added.

Looking forward. In light of the distressed global economic climate, Yahoo lowered its sales guidance for the remainder of the year. At the end of the second quarter, the company was expecting sales to be in the range of $7.35 billion and $7.85 billion. However, the company has now trimmed that revenue guidance to between $7.18 billion and $7.38 billion.

Even thought Yahoo cut its sales forecasts, the company didn't decrease operating cash flow guidance. According to Aggarwal, that means that Yahoo's profit margins will be higher than originally thought.

Investors are worried that large companies will spend less on so-called Internet display ads, such as banners and video. Automakers and banks, two of the nation's hardest hit sectors, have typically been big purchasers of display ads.

Yahoo turned down several takeover offers from Microsoft (MSFT, Fortune 500) this year, a decision that has frustrated many Yahoo shareholders. Since then, Yahoo has pursued an ad-sharing deal with top rival Google (GOOG, Fortune 500).

The partnership has been put on hold, however, as the Justice Department investigates whether the deal would create an online advertising monopoly and violate antitrust laws.

In the conference call, Yang shot down speculation that Google might pull out of the partnership and said that the company was still working with the Department of Justice to negotiate the deal with Google. "We look forward to bringing the benefits to the marketplace as soon as possible," said Yang.

Also on the conference call, Yahoo president Susan Decker talked about Yahoo's efforts to move away from a "one size fits all" portal to a more customized experience. Yahoo has been criticized by some for being too broad and lacking a definite focus.

Meanwhile, Google announced last week that its profits jumped a better-than-expected 26% in the third quarter. Google has continued to report strong growth despite the economic downturn thanks to its dominance in search advertising.  To top of page

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