Yahoo's Q3 disappoints; expect cutbacks on products, workforce spending

Yahoo published third quarter financial results after the bell on Tuesday, and the disappointing results spell out some doom and gloom well before we even get to Halloween.

Non-GAAP earnings were 15 cents per share on a revenue of $1.226 billion.

But Wall Street was looking for earnings of 17 cents per share with $1.26 billion in revenue.

Yahoo chief financial officer Ken Goldman tried to play off the missed targets, defending in the report that the search company is "pleased with our financial flexibility and strong balance sheet."

But Goldman also noted that Yahoo is cutting back on spending across a number of areas -- including its workforce and headcount -- in order to control expenses.

CEO Marissa Mayer added Yahoo would be narrowing its strategy to focus on fewer products in the coming year.

But one project that Yahoo simply can't let go on just yet? The Alibaba spinoff, which has already hit some regulatory snafus.

"In addition to sharpening focus within core business growth, our top priority is the planned spinoff of Aabaco Holdings," Mayer wrote. "This is an important moment for the Company, and we continue to strive to complete the spin as quickly as we can."

The Sunnyvale, Calif.-based company announced in July that the new publicly traded investment company will be known as Aabaco Holdings, Inc.

The spinoff previously known as SpinCo will incorporate all of Yahoo Small Business as well as 15 percent (roughly 384 million shares) of Alibaba Group.

After the split, Yahoo and Aabaco plan to operate independently, and neither will have ownership interest in the other. The spinoff is expected to be a huge cash windfall for Yahoo, although it is questionable how and where Yahoo will deploy its new resources.

But Yahoo seemingly hit a roadblock in September, although the Silicon Valley stalwart has been steadfast in its quest regardless.

Yahoo elaborated in a filing with the U.S. Securities and Exchange Commission in September, outlining a timeline of back-and-forth rulings and new policies instilled by the IRS and U.S. Department of the Treasury that would seemingly affect -- if not derail -- the proposal.

However, Yahoo countered the formal "no-rule" policy -- applying to transactions said to be similar to the one Yahoo is conducting -- established by the IRS on September 14 would not actually apply retroactively.

Thus, Yahoo's board of directors voted to move ahead with the original plans.

Yahoo underscored at least one promising new venture in the form of a new search agreement with Google.

Complementary to an existing deal with Microsoft, Google will provide Yahoo with image, advertising and algorithmic search services for desktop and mobile platforms. Yahoo has also guaranteed some extra wiggle room to decide which search queries to send to Google without a minimum.

Under the terms of the deal, Google will pay Yahoo a percentage of the gross revenues from ads displayed on Yahoo properties or affiliate sites as well as fees for requests for web and image search results.

For the current quarter, Wall Street is looking for non-GAAP earnings of 20 cents per share with $1.33 billion in revenue.

Yahoo followed up with a much softer revenue guidance range of $1.16 billion to $1.2 billion.