Yahoo to cut 1,000 jobs, warns of an uncertain 2008

The bad news may not be over for the nation's #2 search provider, though some analysts yesterday were actually hoping the news would be worse, particularly in the jobs department, in order for things to get better over time.

Yahoo is staying afloat, which is not bad, given the direction it had been heading at this time last year. But with net income down 23.6% annually to $205.7 million for the fourth quarter of 2007 on 7.6% higher revenues of $1.83 billion, it's not exactly in good shape either.

This morning, analysts are downgrading their estimates for the company based on Yahoo's lowered guidance, given during its fourth-quarter performance call yesterday. Some are saying the firm may have only six months left on its restructuring program to go before it may have to take a more drastic measure. One suggestion being floated out there is for it to surrender its stake in either search or advertising, although perhaps someone at Google would call that suggestion rather senseless since the Web pretty much integrates those two features.

One division that definitely is being shelved for now is its premium Yahoo Music service, as president Susan Decker confirmed to analysts yesterday. Also headed for permanent residence in the Wayback Machine are Yahoo's photo services, its 360 social sharing platform, its "Brand Universe" concept where users drive promotions for various popular brands, and its Podcasts and Directory services. All are going due to lack of affordability.

Where Yahoo did see growth last year was in its marketing services: a good 19.5% jump over last year just for its owned and operated sites. So that part of its operations may not be the part Yahoo would want to part with. The other part of its business is actually the part Yahoo relies upon to make those marketing services viable: its search services. Naturally that's going to rack up a cost rather than a revenue. And last year actually wasn't so bad: Traffic acquisition costs were actually flat on the year, declining just one half of one percent to $1.856 billion.

But product development costs for 2007 to get Yahoo back in the game rose 30% over 2006, and sales and marketing costs just for its own brand rose 21.7%. And those two factors are what ate away at Yahoo's comeback: Essentially, it's spending more and more just to keep its brand awareness at something approaching par.

Little efforts, like the one announced yesterday to expand the reach of Yahoo's brand into AT&T's mobile and U-verse services, will help a bit. The company will need to do more, however, and by "more," financial analysts over the past two weeks were expecting Yahoo to make some drastic payroll cuts.

Some wanted at least 2,300, if only as a demonstration that Decker and new CEO Jerry Yang were serious in their intent to rebuild the company. Yesterday, the word came that the number would instead be about 1,000, perhaps fewer. That provoked major analysts such as Goldman Sachs' Jennifer Watson (cited by Reuters) to slash their price target for Yahoo stock. And in the first hours of trading on the NASDAQ exchange, Yahoo shares plunged 10% in value before plugging up the bleeding by mid-morning.

With the US economy having grown by a sluggish 0.6% in the fourth quarter, according to estimates released by the Commerce Dept. this morning, the nation is probably in the midst of a recession at the moment. That means there's no consumer confidence that companies can use as fuel to help themselves out of a pit, like the one Yahoo faces now.

While Yahoo's 2007 revenues approached, and nearly eclipsed, $7 billion, Jerry Yang warned yesterday that his company will be lucky to reach $6 billion in 2008, and it may be more like $5.35 billion. That's not so much a stall as a free fall, and it means that the company doesn't expect its turnaround, if there is one, to come until 2009 at the earliest.