Hit by Downturn, Yahoo to Lay Off 1,400 Employees

Disappointing Quarter Attributed to 'Increasingly Cautious' Advertisers as Display Advertising Slows Further

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NEW YORK (AdAge.com) -- Yahoo is cutting 1,400 employees in an attempt to goose its cash flow after a quarter when its net income dropped 64% due to what President Sue Decker attributed to pullbacks from major brand marketers.
Susan Decker
Susan Decker Credit: Yahoo

Those pullbacks -- made in order for marketers to meet their own numbers, said Ms. Decker -- were to blame for Yahoo's disappointing third quarter, according to the company on its earnings call today.

Net income nosedives
Yahoo's net income for the quarter notched $54 million, or 4 cents a diluted share, down from $151 million, or 11 cents a diluted share, over the year-ago period. The company brought in $1.56 billion in marketing-services revenue (essentially ad revenue), up 1% over third-quarter 2007.

"Demand for branded-display advertising slowed further in the U.S.," said CEO Jerry Yang, noting that marketers in financial and retail categories were "increasingly cautious." While branded premium display ad sales slowed, performance or direct-response ads held up, just not enough to save the quarter. U.S. search revenue was up 11%.

Volume and pricing for guaranteed ads -- the kind bought by big-brand advertisers -- were flat or down slightly. Ms. Decker said she anticipated slower online advertising growth in 2008 and into 2009 but added that Yahoo is hearing from many media buyers that they're consolidating buys with fewer ad sellers in some cases, noting that could actually drive increased spending with Yahoo, which has enormous online reach.

Layoffs dominate earnings call
Much of the call focused on the staff cuts, with Mr. Yang talking of streamlining the organization, including cutting 10% of its approximately 14,000-person staff.
Jerry Yang
Jerry Yang Credit: Paul Sakuma

"This is the first step in a longer-term effort that will last into '09 and beyond," he said, adding that the company could take other steps as well. "Some of these actions might include relocating some operations to lower-cost geographies, consolidating real estate, improving procurement and standardizing our global-technology platform, and we expect that list to grow."

As recently as March, the company had bullish growth expectations, suggesting that revenue minus traffic-acquisition costs would rise 11% this year and 25% in 2009. But by most counts, the recession will last at least through the first half of next year, making that 2009 goal seem more than a little ambitious. It has since tempered its fourth-quarter outlook but didn't make projections for 2009.

An ever-optimistic Mr. Yang called it an "unprecedented macroenvironment" but suggested the online ad market will emerge stronger than before.
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