Technology

Yahoo will cut 1,700 jobs as it slims down its business

Troubled Yahoo Inc., once again, says it has a plan to turn things around after years of sluggish growth and turmoil.

But its latest strategy is less about growth and more about cutbacks — at nearly every level of the company. Yahoo will lay off 15% of its workforce. It is shutting down digital magazines, Yahoo Games and other properties. And it's moving away from producing original scripted content.

That was the grim state of affairs laid out by Chief Executive Marissa Mayer during Yahoo's fourth-quarter earnings report Tuesday, when the Internet company posted a massive loss. After 31/2 years in the job, Mayer is under extreme pressure to find a strategy that sticks.

“Yahoo cannot win the hearts and minds of users and advertisers with a complicated portfolio of products and assets, especially if some no longer meet our aggressive growth goals or distract from growth products,” Mayer said in a call with analysts.

She also said Yahoo was exploring “strategic alternatives.” Although she didn't elaborate, that often means a company is looking to sell itself.

For the three months that ended Dec. 31, the Sunnyvale, Calif., company reported $1.27 billion in revenue, up only 1.6% from the same period a year earlier. Yahoo swung to a steep loss of $4.43 billion, or $4.70 a share, in the fourth quarter because of a hefty write-down. Adjusted for one-time events, it earned 13 cents a share.

Yahoo announced its financial results after the market closed. In regular trading Tuesday, its stock fell 1.7% to $29.06. Shares dropped about 2% after hours.

Yahoo will trim its workforce roughly 15%, or about 1,700 jobs, in the first quarter of 2016 and shut its offices in Dubai, Mexico City, Buenos Aires, Madrid and Milan, Italy.

Although the company beat Wall Street expectations, Mayer acknowledged that it was time for a turnaround and laid out a plan that “we strongly believe will enable us to accelerate Yahoo's transformation.”

That plan further consolidates the company and places greater focus on Search, Mail and Tumblr. It will also focus on four verticals for its digital content: News, Sports, Finance and Lifestyle. Platforms and digital content, she said, are the name of Yahoo's new game.

If that sounds familiar, it's because Yahoo has tried something similar before. The company paid $1.1 billion for blogging platform Tumblr in 2013. That year, it also struck a $10-million-a-year deal with network news star Katie Couric to be its global news anchor.

It paid $17 million for the rights to stream a 2015 NFL match between the Jacksonville Jaguars and the Buffalo Bills. It took a $42-million write-down in its video division after TV shows “Community,” “Sin City Saints” and “Other Space” failed to be the monetizing hits that Yahoo hoped they would be. And it has troves of original digital material, from its fashion website Yahoo Style to its sports vertical.

They were big investments, all in platform and digital content. But none of them managed to rescue Yahoo. Unlike Instagram and YouTube, acquired by Facebook and Google respectively, Yahoo's digital content and platform bets haven't paid off.

“One of Yahoo's biggest challenges is they have this brand that people associate with yesterday's Internet, and I think it holds them back,” said Jan Dawson, chief analyst at Jackdaw Research. “Flickr has improved. Their mail product is actually quite good. But the problem is people associate these things with the old brand, and they write it off entirely.”

Or, in the case of Tumblr, Dawson said Yahoo has done such a poor job of integrating the service into its core brand that many consumers don't even associate the two, and so Yahoo is unable to leverage any benefits Tumblr might have to offer.

“You can acquire a growing company [like Tumblr], but unless you use it to build your business, what good does it do?” Dawson said. “You're being a holding company for that business.”

Technology and media analysts say Yahoo's media bets have struggled partly because the bets themselves weren't home runs, and partly because the company went in without a clear strategy.

“If they'd bought Instagram instead of Tumblr, they'd probably be stronger today,” said Mike Vorhaus, president of Magid Advisors.

But putting aside the fact that Tumblr to date has done little for Yahoo, analysts believe that Yahoo's initial digital content strategy was littered with rookie errors.

On the original programming front, Vorhaus said it's easy for companies to become enamored with creating original TV shows without realizing how hard it is to make a hit, and he thinks that is exactly what happened with Yahoo.

Dawson described Yahoo's video strategy as scattershot.

“It's very, ‘We'll try this, we'll try that, we'll throw a bunch of money at that thing without a clear, coherent strategy around it,'” he said. “Much of what they've done in video — the NFL rights, the resurrected TV shows — has been incoherent and uncoordinated, and so as a result it's flopped.”

Also Tuesday, a former Yahoo employee sued the Internet company, alleging that a manipulated employee-rating system, as well as gender bias, led to his illegal termination.

In the lawsuit, plaintiff Gregory Anderson said he had gotten a promotion, a raise and compliments for his work before he was told in November 2014 that he was in the bottom 5% of Yahoo's employees based on quarterly performance reviews and would lose his job.

At the time, Anderson had been with the company for four years and was the editorial director in charge of Yahoo's autos, shopping, homes, travel and small-business sites.

tracey.lien@latimes.com

Twitter: @traceylien

Copyright © 2016, Los Angeles Times

UPDATE

8:01 p.m.: Updates with additional details and background

Originally posted at 2:05 p.m.

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