Yahoo to cut 400 jobs as it rearms for future growth

By Brian Bergstein AP Business Writer
Monday November 19, 2001

SUNNYVALE – Yahoo! Inc. will cut 400 jobs, more than 12 percent of its work force, as it reorganizes in search of “sustainable, profitable growth,” the Internet company told analysts this week. 

The company is condensing 44 business units into six to create a more manageable structure that will help reduce Yahoo’s reliance on advertising and generate new paid services, chairman and chief executive Terry Semel said. 

“There’s nothing wrong with advertising revenue,” Semel said on a stage in Yahoo’s new gray-and-purple headquarters complex. “We believe in it, but you will see this is going to be a much more diversified company.” 

The company also revealed revenue projections for the current quarter and 2002 that are in line with analysts’ estimates. 

Yahoo shares fell 38 cents to close at $14.83 in trading on the Nasdaq Stock Market, but were up 13 cents in extended trading. 

Yahoo imposed the first layoffs in its six-year history in April, cutting 420 jobs – 12 percent of its work force. 

This second round is necessary to put resources where they will need to be for the company’s next stage of growth, said president and chief operating officer Jeff Mallett. The cuts also will save the company $30 million to $35 million a year, chief financial officer Susan Decker said. 

Although 400 employees will be cut from Yahoo’s 3,256-member work force, about 100 will be added in new positions created by the restructuring – for a net loss of around 300. 

Analysts were eager to hear details of Yahoo’s plans because the company has reported four straight money-losing quarters and consumers have been lukewarm to its new subscription-based offerings. 

Semel, a Hollywood veteran hired in April to transform Yahoo, was equally excited to explain his strategy in depth. 

“I kind of see it as our coming-out party,” he said. 

Advertising amounted to 90 percent of Yahoo’s $1.1 billion in revenue last year, which proved problematic in the dot-com bust and the economic slowdown. 

Semel said Yahoo will reduce that rate to 76 percent by the end of this year, and he set a goal of making advertising about 50 percent of sales in 2004. 

The company will offer more packages of services to consumers and businesses, and try to make its search engine into a profit producer by letting advertisers pay to have certain keywords bring up links to their sites. The company also will seek more fees from shopping, auctions and Internet access services around the world. 

Yahoo moved toward some of those goals this week by announcing a partnership with Overture Inc. to offer paid listings on its search pages and a deal with SBC Communications Inc. to provide co-branded high-speed Internet access over digital subscriber lines. 

Yahoo counts 218 million registered users — 80 million of whom are considered active users. Semel wants at least 10 million of them to have a “direct billing relationship” with Yahoo, making the company more of a “principal” service provider and not just a distribution “agent.” 

Still, Yahoo was careful to remind analysts it is not neglecting advertising, trumpeting its Internet marketing services and its improved relationships with ad agencies that were put off by what they perceived as Yahoo’s arrogance during the dot-com heyday. 

Analyst John Corcoran of CIBC World Markets said Yahoo’s new management better understands the company’s challenges. 

“It’s no longer a 21-year-old who had been pumping gas and now he’s at a dot-com,” he said. “There’s some gray hair coming in on the sales side.” 

Steve Weinstein of Pacific Crest Securities said Yahoo’s diversified strategy makes good sense — now Yahoo has to execute on it in what remains a difficult economic environment. Weinstein said he does not expect Semel to make any revolutionary changes any time soon. 

“Terry’s a real builder. He’s not going to make rash or silly decisions,” Weinstein said. “It’s going to take a while.” 

Decker said revenue in the current quarter will be between $160 million and $180 million, in line with analysts’ estimates of $168.9 million, according to Thomson Financial/First Call. She said earnings would be break-even or 1 cent per share, excluding one-time events; analysts are forecasting 1 cent. 

For all of 2002, Decker predicted Yahoo would see $725 million to $785 million in sales. Analysts were forecasting $735.7 million, according to First Call.