Yahoo Shares Rise On Cost-Cutting Plan - InformationWeek

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10/22/2008
04:33 PM
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Yahoo Shares Rise On Cost-Cutting Plan

Investors give CEO Jerry Yang's plan to reduce spending by $400 million a thumbs up.

Yahoo shares defied Wednesday's market sell-off, rising as the Dow Jones industrial average and the Nasdaq Composite fell sharply, along with the company's forecasts.

Yahoo announced Tuesday that it would cut 10% of its workforce, or 1,500 jobs. The news came as the company reported a 64% decline in profit from $151 million, or 11 cents per share, last year to $54 million, or 4 cents per share, in the third quarter of 2008. Yahoo also reduced its fourth-quarter projections to just under $7.2 billion. That's down from the company's previous projection of roughly $7.4 billion to $7.9 billion.

Yahoo's revenue increased 1% to $1.79 billion before paying ad commissions to partners, which reduced revenue to $1.32 billion. That's about $50 million less than forecasters had anticipated.

Yahoo blamed the losses on reduced spending by advertisers mired in the economic slump. CEO and co-founder Jerry Yang said the job cuts are part of a plan to slash costs by $400 million this year. At the same time, he tried to reassure investors that the company can continue to cut costs to cope with economic problems next year.

"We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity," Yang said.

"The steps we are taking this quarter should deliver not only near-term benefits to operating cash flow, but should also substantially enhance the nimbleness and flexibility with which we compete over the long term. We enter this slowing market with competitive advantages as the destination of choice for consumers and a leader in providing online advertisers with the broadest set of advertising management tools and products in the industry. We plan to continue building on those strengths," Yang said.

He also stressed that the picture changed rapidly since September. "The environment is totally different from what it was four weeks ago," he said during a conference call.

The job cuts will be spread out over the next two months.

In spite of all the bad news, Yahoo stocks rose 2.65% to $12.39 Wednesday as investors signaled their approval of the company's retrenchment plan. Most stocks fell Wednesday, and the Dow lost about 500 points, while the Nasdaq fell almost 5%.

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