Yahoo's 4th-quarter profit drops 23%

SAN FRANCISCO -- Yahoo Inc. today reported a 23% drop in fourth-quarter profit and said it would lay off 1,000 employees, about 7% of its workforce, as it tries to mount another comeback.

Wall Street had been hoping for deeper cuts, and Chief Executive Jerry Yang acknowledged that Yahoo might have a tough 2008. The quarterly report and pessimistic full-year forecast sent Yahoo shares plunging nearly 11% to $18.59 in after-hours trading, after they had gained 3 cents to close at $20.81.
Some analysts say the forecast appears not to factor in the likelihood of a downturn in the economy and consumer spending that could put a big squeeze on online ad budgets. With its dependence on display advertising, Yahoo would be particularly vulnerable, while search leader Google Inc. would more easily weather a downturn, analysts say.

Even more troubling, analysts say, is that Yahoo is now talking about a "multiyear transformation," which is likely to exacerbate shareholder unrest.

Yahoo declined to make executives available for interviews to discuss earnings results or the company's outlook. A conference call with analysts featured broad strokes and few specifics about what Yang says is an ambitious strategic plan to position Yahoo to capture significant share of online ad dollars in the years ahead.

"We are confident we are headed in the right direction," Yang said on the call.

In a statement, he said the company expected to "face headwinds this year."

Yahoo, based in Sunnyvale, Calif., reported net income of $205.7 million, or 15 cents a share, down from $268.7 million, or 19 cents, a year earlier. Analysts had forecast earnings of 11 cents a share.

Revenue rose 8% to $1.83 billion, in line with analyst estimates.

The company said it would take a $25-million charge for the job cuts, which it expects to make in mid-February. Yahoo did not say which of its 14,300 employees would be targeted for layoffs.

"The critical question for us going forward is how Yahoo is going to grow its advertising business in what's likely to be a very tough market," said Sanford Bernstein analyst Jeff Lindsay.

Yahoo said it would continue to hire in strategic areas. It announced today it had hired a new chief technology officer, Aristotle Balogh, from VeriSign Inc. to replace Farzad Nazem, who retired.

Separately, Yahoo said it had renewed an advertising partnership with AT&T Inc. The deal, whose terms were not disclosed, will let Yahoo provide ads for the phone giant's mobile and broadband customers as well as continue to develop co-branded Internet products.