Yahoo! Lays Off 10% and Drops 64% In Profit In Q3

Posted Oct 22, 2008

Yahoo! Inc. (NASDAQ:YHOO) CEO announced that they are planning to go ahead with the 10% in layoffs as advised by Bain & Company.  Yahoo! also announced a 64% drop in profit in the third quarter.  This is Yahoo!’s second major round of layoffs this year.

In the first layoff round, Ryan Kuder used Twitter to report everything that was happening in real-time including the confiscation of his laptop to celebrating unemployment at Chevy’s.

In the meantime, Yahoo!’s stock price continues to fluctuate wildly.  Yahoo!’s market cap continues to remain below $18-$19 billion.  Foolishly, Yahoo! turned down Microsoft’s $44.6 billion offer 8 months ago. Yahoo! lowered their annual guidance to about $7.18-$7.38 billion from the previous forecast of $7.35-$7.85 billion according to the WSJ.

Yahoo! executives reported that a lot of the positive results were prevented by a display ads weakness from larger brand advertising companies.  Yahoo! hopes to make up for this as they are working with Google Inc. (NASDAQ:GOOG) in an advertising-sharing partnership.

The reduction in headcount should save the company about $400 million before EOY 2008 according to Yang.  Yahoo! also spent about $37 million in advisory fees in the third quarter.

Below is the full memo that Yang sent to his employees (AllThingsD):

From: Jerry Yang
To: ?
Date: Tue, 21 Oct 2008 14:20:21 -0700
Subject: update


i feel it?s important for me to reach out to you after our earnings announcement, and before our all hands meeting tomorrow.

we as a company have been through a tremendously challenging year; and managing the increasingly turbulent global advertising climate has been an important focus for the last three months.

throughout the first three quarters of 2008, we have been balancing between investing in our top priorities, and managing our cost structure. beginning in september, with the help of Bain & Co., we initiated a series of steps to determine how we can become more efficient and productive as an organization.

we heard from you through the YEES survey, and through your suggestions on backyard, and we?ve identified many areas that we all feel we can improve upon. our productivity efforts, based in part on what we heard from you, will involve initiatives such as streamlining our organizational structure through reducing layers and increasing spans of control, and eliminating redundancies. longer term structural efficiencies include consolidating facilities, improving procurement, and standardizing our global technology platforms.

today as part of our q3 earnings release, we said that our goal is to reduce our current annualized cost run rate of roughly $3.9 billion by more than $400 million before the end of 2008. we are targeting non-headcount expenses wherever possible, such as facilities and outside services. however, because compensation expenses are the single largest part of our costs, we anticipate a reduction of at least 10% of our global workforce by year-end.

affected employees will be notified of layoffs in the next several weeks. we understand that hearing this news now creates uncertainty, but we are moving ahead in a way that balances speed with a clear focus on accomplishing what is necessary to set the organization up for long term success. going forward it will continue to be important for us to make the right decisions to keep our business efficient and strong.

having layoffs is very difficult, particularly in light of all we?ve experienced this year. but we don?t take these decisions lightly, and are committed to treating affected employees fairly, offering severance and outplacement services.

the steps we are taking are not easy for us as a company, but as we become more fit as an organization, decision-making will be faster and it will be easier for us all to get more done and stay focused on our strategy. these changes will also prepare us to better deal with the macroeconomic downturn. as with previous downturns, yahoo! continues to be a place where consumers turn for information and communications, and is an integral part of their internet day. as the global economy improves in the future, i certainly believe that we will be stronger and benefit from the actions we are taking now.

as always, i thank you for all you do as yahoos.