Yahoo's Yang Sees a Challenging 2008

Plans to Cut 1,000 Staff; Earnings Down 23% in Fourth Quarter

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NEW YORK ( -- Yahoo's situation may get tougher before it gets better. As the company reported fourth-quarter earnings, CEO Jerry Yang warned of "headwinds" in 2008.
Yahoo CEO Jerry Yang acknowledged that fourth-quarter results may not make investors happy.
Yahoo CEO Jerry Yang acknowledged that fourth-quarter results may not make investors happy. Credit: Yahoo

"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," said Yang in a statement.

The internet giant's earnings fell 23% in the fourth quarter as net income was $206 million, or 15 cents per diluted share, down from $269 million, or 19 cents per diluted share, for the same period in 2006.

Unhappy fourth quarter for investors
On the company's earnings call, Mr. Yang said fourth-quarter results were slightly above Yahoo's expectations but acknowledged that they may not make investors happy.

"What may not be as evident in our numbers are the underlying trends that reveal what we believe is building momentum in our core business," he said. That did nothing to quell Wall Street's jitters about the company; its stock price dropped 8% in after-hours trading, mostly due to 2008 guidance that wasn't as bullish as investors had hoped it would be.

Yahoo will be cutting up to 1,000 jobs mid-February, the company confirmed. "Rather than across-the-board cuts, we will make targeted reductions alongside targeted investments and plan to eliminate redundancies in bureaucracy and redeploy talent," Mr. Yang told investors.

Remnant display important
Yahoo President Sue Decker touted its ability to make more money from remnant display ad space, stating that the monetization gap between guaranteed, or premium display and non-guaranteed, or remnant display, was narrowing.

Strength in categories varied more in the fourth quarter, she said, noting "solid and in many cases accelerating growth" in auto, pharmaceutical, telecom and consumer packaged goods. However, there was decelerated growth in financial, travel and retail, which she chalked up to broader economic issues.

The company reiterated that its attention would focus on building a more efficient ad platform and strengthening what it is calling its "starting points," or places consumers visit first when they go online: Yahoo's front page, Yahoo Mail, search, My Yahoo and mobile. As for content, it emphasized the importance of key anchor properties like finance, sports and news. Ms. Decker said the company has "very detailed consumer roadmaps" behind those anchor properties. "We are looking at opening up all our sites and making them more social," she said.

Investing to be a key factor in '08
Mr. Yang suggested that in 2008, Yahoo would need to invest to become more competitive. "Provided we make the necessary investments, with consolidation favoring only a few players, we believe Yahoo is in a strong position to become one of the leading advertising network and platform companies," he said.

The company also reported its full-year 2007 net income of $660 million, or 47 cents per diluted share, compared to $751 million, or 52 cents per diluted share, for 2006.
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