Yahoo lowers its outlook for 2008; Sees 'headwinds'; Restructuring in Feb.

Yahoo lowers its outlook for 2008; Sees 'headwinds'; Restructuring in Feb.

Summary: Yahoo's fourth quarter results Tuesday were better than expected, but the company's outlook for 2008 disappointed. Meanwhile, Yahoo didn't deliver layoffs as many prognosticators were expecting, but CEO Jerry Yang said a workforce review and a targeted "jobs realignment" will begin in February.

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Yahoo's fourth quarter results Tuesday were better than expected, but the company's outlook for 2008 disappointed. Meanwhile, Yahoo didn't deliver layoffs as many prognosticators were expecting, but CEO Jerry Yang said a workforce review and a targeted "jobs realignment" will begin in February.

First the good news (relative to expectations): Yahoo's fourth quarter net income was $206 million, or 15 cents a share, on revenue (minus traffic acquisition costs) of $1.4 billion. Excluding charges, Yahoo's earnings were 20 cents a share. According to Thomson Financial, Yahoo was expected to report earnings of 11 cents a share on revenue of $1.4 billion for the December quarter.

However, Yahoo's outlook wasn't up to Wall Street's expectations, but that guidance shouldn't have shocked anyone. On a conference call with analyst Yahoo CEO Jerry Yang said the company has a restructuring on deck. Instead of across the board cuts, Yahoo will make targeted cuts and redeploy talent. Yang added that Yahoo will also invest heavily in growing strong performing properties. Yang said the company was making fundamental changes to the business and not merely "tinkering around the edges."

Yahoo CFO Blake Jorgensen said that the restructuring will impact about 1,000 jobs, almost 7 percent of the company's estimated 14,500 employees. The company will take a charge of $25 million in the current quarter.

All of those moving parts--along with economic worries--means that Yahoo's outlook is light. Here's the money slide:

yhooslide.png

For the first quarter, Yahoo was also expected to report earnings of 11 cents a share on revenue of $1.37 billion. That revenue target is now a reach.

Earnings for 2008 were expected to be 52 cents a share on earnings of $5.89 billion, according to Thomson Financial.

To say these results (statement) were highly anticipated would be an understatement. First there were reports about a fourth quarter debacle, then layoffs and then guesses that maybe the quarter wasn't so bad after all. It was enough to make your head spin. There may also be some disappointment that Yahoo didn't announce a dramatic downsizing today as some folks were advocating.

Separately, Yahoo named Aristotle Balogh, 43, chief technology officer. Balogh was the CTO for VeriSign. He will oversee Yahoo's engineering team and manage technology operations and report to Yang.

In addition, Yahoo expanded its alliance with AT&T. The agreement is an ad revenue sharing deal that spans handsets and PC desktops. Yahoo will power a new portal for AT&T and provide search and display advertising for AT&T customers on mobile devices and PCs. The deal covers AT&T properties including U-verse TV, Yellowpages.com and other sites.

However, the outlook for Yahoo overshadowed those developments.

In a statement, Yang said:

"While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009.”

On a conference call with analysts, Yang said the underlying trends in search and display advertising are showing improvement. "Our efforts to build a premier display ad network and search are paying off," said Yang. He emphasized the company's previous plan to focus on the home page and other core properties and touted Yahoo's Life initiatives.

Other key figures on the state of Yahoo:

  • Fourth quarter operating income in the fourth quarter was $191 million, down 38 percent from a year ago.
  • U.S. fourth quarter revenue was up 15 percent from a year ago with international revenue falling 7 percent.
  • For 2007, Yahoo reported revenue of $5.13 billion (excluding TAC), up 12 percent from a year ago. Net income for the year was $660 million, or 47 cents a share, down from earnings of $751 million, or 52 cents a share in 2006.

On the conference call there were a few key takeaways that are worth noting. To wit:

  • Yahoo president Sue Decker said Yahoo is pruning properties and optimizing resources. The company is trying to shutter non-performing properties.
  • Decker kicks Comscore. Decker noted that Yahoo's page growth was growing at a double digit clip in contrast to what Comscore is reporting. Welcome to the club Sue. Decker noted that the company is using visits instead of page views and unique users as a more appropriate metric for Yahoo's key properties.
  • Yahoo is investing heavily in open source grid computing. Decker cited a "major investment in open source grid computing." This infrastructure is already improving algorithmic search and advertising, said Decker. In the future, Yahoo will building new systems and services on this grid computing infrastructure.
  • Yang was pressed about display advertising and the possible impact about a weak economy. Yang said Yahoo wasn't making predictions--a good move considering how often economists are wrong.
  • Why would Yahoo's investment pay off? Yang said U.S. display growth grew 20 percent year over year and noted that Yahoo's core business is healthy. If that state of affairs holds, Yahoo should be able to gain from its investments in its display ad network. "We do believe that the investments we are making now in display advertising will be a differentating point in the future," said Yang.
  • Decker said Yahoo plans to integrate a "social graph" into its key properties. The big question is whether Yahoo can monetize this inventory.

Topics: Banking, Enterprise Software, Social Enterprise

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5 comments
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  • Hand Jerry Yang his walking papers ASAP.

    All I see him doing is trying to cut away the fat and he is taking the meat with it. No innovation, no partnering, no anything but the same old same old. If Yahoo doesn't find new leadership SOON it won't matter because the last guy there will be responsible for turning out the lights.
    No_Ax_to_Grind
  • RE: Yahoo lowers its outlook for 2008; Sees 'headwinds'; Restructuring in F

    execs/globalists/free trade proponents:
    The layoffs at Yahoo indicate a serious shortage of skilled technical workers in the USA. We can fix this dire situation by increasing the number of H-1B visas granted every year to foreigners who will enter the USA and provide the necessary skills that are lacking in the US job market. This is an emergency.

    everybody else:
    huh?
    stevekleeban@...
  • RE: Yahoo lowers its outlook for 2008; Sees 'headwinds'; Restructuring in Feb.

    That is just plain GREED, lay off 1k people because you only net 660 Million! how much do you relly need too make. that makes me want too use anything but yahoo now
    cabrown451
    • MONOPLY

      I agree. This has to come to an end. US people are loosing job's head over heel.Because large corporations are permitted to get by with this. Years back I remember a story of a company that had gotten very large.Back then are own government charged them with monopolizing the industry. Well apparently it must be a new bill passed by are US tax dollar by congress allowing this now. Maybe I am wrong and misled but like a comedian said here's your sign. YOU TELL ME
      john.payne@...
  • RE: Yahoo lowers its outlook for 2008; Sees 'headwinds'; Restructuring in Feb.

    Yahoo needs to have a good uplift in its performance if it is to survive.
    Just look at its dismall attempt at running Yahoo Jukebox for example (which was a great program under Music Match Jukebox)
    johnaus@...