Yahoo Posts Loss in 1st Quarter, Plans to Cut 12% of Staff
Yahoo, owner of the most widely used Internet search site, posted a first-quarter loss as advertising sales declined, and said it will fire 12% of its work force to cut costs.
The company posted a net loss of $11.5 million, or 2 cents a share, in the first quarter, contrasted with net income of $67.6 million, or 11 cents per share, a year earlier.
Yahoo narrowly bettered Wall Street’s diminished projections for the quarter on a pro forma basis by earning $7.6 million, or 1 cent per share, excluding one-time gains and losses.
The company also saw its revenue fall 22% to $180.2 million in the latest quarter, compared with revenue of $230.1 million a year ago.
Analysts had expected disappointing results, given Yahoo’s strong warning last month that its primary revenue source--advertising--had nose-dived in recent months. About 30% of Yahoo’s advertisers are other Internet companies, and many of them are short of cash to spend on ads.
A consensus of analysts polled by First Call/Thomson Financial had projected a break-even quarter for Yahoo on a pro forma basis.
“The current period we are navigating through is challenging, but it’s temporary,” Yahoo Chairman Tim Koogle said in a conference call. He noted that financial cuts also will come in marketing, travel and other areas. Yahoo will take a $40-million to $60-million charge in the current quarter for the layoffs of 421 staffers.
The work force reduction “may not be enough” given continued uncertainty in the ad market, warned Safa Rashtchy, an analyst with US Bancorp Piper Jaffray.
And others suggested that Yahoo’s core business shows increasing signs of weakness.
The Santa Clara, Calif., company’s shares fell 16 cents to close at $15.86 in regular Nasdaq trading Wednesday. In after-hours trading following the announcements, Yahoo shares rose as high as $16.38.
Yahoo’s stock has been hammered by investors during the last year as the Internet stock bubble has burst, with Yahoo losing about 90% of its value since hitting a high of $216.
On Wednesday, Yahoo warned that its revenue this year would slump by about one-third--to between $700 million and $775 million--compared with a year earlier.
“The company continues to fault the U.S. economy for slowing media budgets, yet there’s no one else out there seeing sequential declines in ad revenue [at the magnitude] Yahoo is,” said Scott Reamer of SG Cowen Securities. Yahoo’s ad revenue from traditional companies--that is, other than “pure-play” Internet firms--declined 35% in the first quarter compared with the preceding quarter, the company said.
Analysts say that any turnaround at Yahoo will have to combine an improvement in advertising and new sources from pay-services such as auction listings, real-time stock quotes, sales of pornographic DVDs and video tapes and a planned move into music subscriptions.
Yahoo’s efforts to convert its vast audience of about 190 million worldwide into paying customers have shown meager progress so far. “None of their new alternative revenue opportunities are gaining any meaningful revenue or traction so far,” said Frederick Moran, an analyst with Jeffries & Co.
Meanwhile, the company is dealing with important transitions in its management ranks. Koogle stepped down as Yahoo’s chief executive last month, and the company is searching for a replacement.
“We’re looking for a strong and proven leader of a multibillion dollar company, who can manage a global work force,” preferably from a technology or media company, said Yahoo President Jeff Mallett.
A year ago, when Yahoo’s stock was sky high, any number of such candidates would have been available. Now it will be an uphill battle, analysts say.
In recent months, Yahoo also has lost five of its top international managers. The latest departure, announced Wednesday, was Senior Vice President of International Operations Heather Killen, who left to pursue other business interests.
“The morale can’t be good,” Rashtchy said.
All these factors suggest that despite anti-takeover measures taken by Yahoo’s board, a takeover may be likely in the next year by a large media company such as Viacom or Disney, analysts say.
Merrill Lynch analyst Henry Blodget agrees that the company’s independence is in doubt.
“We believe that if that company can’t turn itself around, it will sell to a large media or technology company for $10-$15 [per share] within a year,” he wrote in a research note on Tuesday. Blodget suggested in a recent interview that Microsoft might be another likely suitor for Yahoo.
