Yahoo to cut 1,000 jobs as it reports fall in profits

Yahoo announced plans to cut 1,000 jobs Tuesday - its largest layoff since the dot-com bust - as the economic slowdown and fierce competition from Google buffeted its Internet advertising business.

The job cuts came as the search firm said its profits fell in its most recent quarter compared to the same period last year, and Chief Executive Jerry Yang said growth would be slow in 2008 as the Sunnyvale company continued to refocus its business.

Yang said he was optimistic about the future. "We are not tinkering around the edges," Yang told analysts Tuesday afternoon. "We are making significant and what we believe are game-changing investments in Yahoo's future."

But his statements led some investors to finally give up on the company's long-promised turnaround.

Yahoo's stock fell 10 percent during after hours trading, after closing at $20.81, up 3 cents in regular trading, and far off its 52-week high of $34.08 at the end of October.

"Basically what Yahoo is saying is, 'Have more patience with us,' when investors have already given them two and a half years to transform their business," said Sandeep Aggarwal, an analyst with Oppenheimer & Co.

Yahoo, founded by Yang and David Filo, was once a high-flying Internet darling, but has struggled in recent years as Google revolutionized the search-advertising business and Yahoo struggled to keep up.

Yang has pledged to refocus Yahoo to better meet the needs of four key groups: regular users, Internet publishers, advertisers and developers.

He said he wants Yahoo to be a "starting point" for people who use the Internet and he has pledged to open up its technology so that it can be a platform for advertisers and developers to reach the hundreds of millions of people who are Yahoo's customers.

Yang has presided over an extensive restructuring and shuttered a number of services, including the 360 blogging platform, Yahoo auctions and Yahoo photos, which was replaced by Flickr.

However, Yang, who assumed the top job in June following the ouster of former Chief Executive Terry Semel, acknowledged Yahoo is facing "head winds" in transforming its business.

The basic problem, said former Yahoo executive Ellen Siminoff, is that far more people are using Google for search.

Siminoff, chief executive of Efficient Frontier, a search-engine marketing company, said an analysis of $450 million spent online by large advertisers last year showed Yahoo is rapidly losing share, despite clear improvements to the software it uses to match advertisements to search results.

Siminoff said Yahoo's share of search advertising dropped 25 percent from the fourth quarter of 2006 to the fourth quarter of 2007. "Advertisers are adding budget and the lion's share of that is going to Google," she said.

According to comScore, 58 percent of Internet searches conducted in the United States in December were done on Google's sites versus 23 percent on Yahoo's sites.

Its most recent quarterly earnings give some sign of its challenges. Yahoo's net income was $206 million, or 15 cents per share, for the quarter that ended Dec. 31, a decrease of 23 percent from the same period one year ago. Sales rose 8 percent year-over-year to $1.83 billion.

Excluding certain costs, sales increased 14 percent to $1.4 billion on earnings of 20 cents per share.

On this basis, analysts had been expecting sales of $1.41 billion and earnings of 20 cents per share, so the quarterly report roughly met expectations.

But Yahoo's outlook of $7.2 billion to $8 billion in revenue for the year and $1.7 billion to $1.8 billion for the first quarter was less than expected.

And the news that Yahoo had renegotiated a lucrative deal with AT&T - and would see annual sales drop up to $200 million as a result - was also disappointing.

"The silver lining is that they have gotten a lot of the near-term big negative issues out of the way," said Jim Friedland, an analyst with Cowen and Company. "They can't have the AT&T contract go away again."

Friedland said Yahoo still faces big long-term challenges. "They are basically competing with Google, which has more resources and better market position," he said.

Yahoo separately announced that Aristotle Balogh, 43, the chief technology officer of Verisign, would be assuming that post at Yahoo. David Filo, who co-founded Yahoo with Jerry Yang in 1995, had been temporarily filling the post following the resignation of Farzad Nazem in June 2007.