Yahoo profit drops, targets job cuts as ads weaken

By Eric Auchard

SAN FRANCISCO (Reuters) - Yahoo Inc posted a sharply lower quarterly profit on nearly flat sales, but its shares rose 8 percent on the Internet media company's plan to cut at least 10 percent of its work force to save costs.

Yahoo, the leading provider of online display advertising, said on Tuesday it planned to cut at least another 10 percent of its roughly 15,000-strong global work force, and reduce its expense-run rate by around $400 million by the end of 2008.

The planned job cuts of more than 1,500 employees expand an earlier cut of roughly 1,000 jobs, or 7 percent, that Yahoo made in February. Chief Financial Officer Blake Jorgensen said Yahoo was prepared to further cut jobs and other expenses in 2009 if the economy continues to deteriorate.

Yahoo is cutting its work force in high-cost markets and hiring aggressively in lower-cost locales such as Eastern Europe, India and Southeast Asia.

"The stock is up," Cowen & Co analyst Jim Friedland said. "It's not up on better-than-expected results. It's up on a lack of a complete meltdown in the business," he said.

The Silicon Valley-based Web pioneer said net income for the third quarter tumbled to $54.3 million, or 4 cents per diluted share, from $151 million, or 11 cents per diluted share.

Gross revenue, including payments to affiliated websites that carry Yahoo ads, edged up 1 percent to $1.79 billion. Net revenue was $1.325 billion, compared with the average Wall Street estimate of $1.37 billion, according to Reuters Estimates.

Wall Street was looking for a profit, on average, of 8 cents per share, according to Reuters Estimates. Net revenue forecasts had ranged from $1.29 billion to $1.43 billion, the same data showed.

Yahoo President Susan Decker said the company struggled as corporate brand advertisers scaled back spending on Web marketing promotions, not only in the United States but also across Europe and Asia. Marketers in the travel and retail industries have been canceling some contracts, she said.

"We are still seeing a weakening trend in some Asian markets," Decker said.

Yahoo co-founder and Chief Executive Jerry Yang put a brave face on the situation, saying that while its premium display advertising business was declining, Yahoo appeared to be gaining market share as buyers consolidated their spending.

"I am encouraged that most advertisers who are still spending in this environment are spending with Yahoo," Yang said.

GLOOMY OUTLOOK, NARROWING OPTIONS

Yahoo forecast fourth-quarter gross revenue at between $1.773 billion and $1.973 billion. That represents a decline of 3 percent to a modest growth of 8 percent from the year-earlier quarter's $1.83 billion.

"I had been predicting they would reduce their guidance for (the fourth quarter) but they really whacked it," said Martin Pyykkonen, an analyst with Wunderlich Securities.