Job cuts, lower income, Google delay a triple-whammy for Yahoo

2:55 pm PDT October 21, 2008 - Yahoo's third-quarter earnings call included news of layoffs in the next few weeks, a weakening outlook for operations in Europe and Asia, and word of a "brief delay," in Jerry Yang's words, in the partnership with Google.

The call (ongoing at 2:50 pm PDT) indicated that even though user growth numbers are up and the company's new APT publishing platform launched successfully earlier in the quarter, dismal numbers for the company's premium display advertising business are having a significant impact. The company reported revenues of $1.786 billion, a one-percent increase year-to-year, but earnings fell to 4 cents/share over the same period -- down 7 cents and short of predictions.

5:10 pm PDT October 21, 2008 - Wondering about those Yahoo layoffs? So are Yahoo employees. Just prior to Tuesday's third-quarter earnings call, CEO Jerry Yang sent a memo warning "yahoos" to expect imminent cuts to at least 10% of its global workforce.

Smarting from the global economic crisis, the strengthening dollar, and the Microsoft-courtship debacle (defense against which cost Yahoo around $37 million), company heads Yang, President Sue Decker and CFO Blake Jorgensen used terms like "focus," "commitment," and -- repeatedly -- "confidence."

They did not, however, make much use of the words "great timing." One of the company's biggest launches during the last quarter, the APT digital ads platform, launched on September 24 -- right about the time the wheels were seriously coming off the market, and coinciding with a steep decline in premium display ad revenues. The company's adjusted year-over-year growth rate now rests at 5%, down from 9% in Q2 and 12% at the beginning of the year. Year-to-year revenues were up one percent.

That $37 million outlay to fight off Microsoft's advances was a factor in third-quarter operating income of $70 million, a 53% year-over-year decrease from 2007. Year-over year cash flow from operating activities was down 24%; free cash flow was down 31%.

Still, the executive team on the call was positive about APT. Decker also described a 30% increase in clicks on the top module in the new front-page design that's rolling out to users, and the company claims that aggressive cost-cutting measure and "streaming [the] organization across regions" would take the company through whatever tough times are ahead.

In addition, Yang and Decker both talked up the new profiles.yahoo.com dashboard-style interface that will let users monitor of all aspect of their Yahoo social presence and, eventually, their presence elsewhere online as well.

Earnings-call Q&A sessions, which take mainly questions from representatives of investment houses, tend to be oriented to specifics in the numbers at hand and the numbers ahead. But a question near the end of the hour asked what, after rejecting the Microsoft offer, Jerry Yang intends to do to unlock value in the company now that the stock price is sitting below $13.

The answer Yang provided -- cut staff, focus, streamline, and so on -- didn't provide much useful data, but it was as close as the event came to addressing impassioned calls for Yang to step away from the company he co-founded.

Yang was a bit more specific in the employee memo, saying that though cost-cutting would focus as much as possible on non-headcount items (e.g., travel), the effort to reduce the company's annualized cut run rate of approximately $3.9 billion would lead to workforce reductions by year's end -- 10% of staff or perhaps more. That works out to over 1,400 employees, though it's still well below the numbers at least one observer claims the company needs to chop to make cuts work. The company hopes to reduce expenditures, of which compensation is their largest, by over $400 million.

YHOO stocks currently stand at $12.78 in after-hours trading, above the day's high of $12.74.