Yahoo Earnings Mixed, Company To Go Through With 1,000 Job Cuts Amid Uncertain 2008

Despite the hopes of many and rumors that Yahoo would post “strong” earnings, Q4 2007 results (PDF) were mixed, and net income was down from a year ago. In addition, CEO Jerry Yang said the company faced “headwinds” in 2008 and offered weak guidance but promised a return to growth in 2009. Investors were unhappy, and stock was down at one point 10 percent in after-hours trading (this morning it has recovered).

Total revenue in Q4 was $1.83 billion, which represented 8 percent growth of the same period a year ago ($1.7 billion). Full year 2007 revenues for Yahoo were $6.97 billion. Simultaneously, Yahoo announced it would be cutting 1,000 jobs, which is at the low end of the rumored range.

Yahoo has a total of 14,300 employees. At the end of 2006, the company employed 11,400 people. The layoffs are the largest in the company’s history (after 650 people were let go following the 2001 “dot-com bust”). However, they’re relatively modest considering the overall size of the organization (7 percent). Exactly which departments will see layoffs wasn’t said.

Other announcements included the hiring of new Chief Technology Officer Ari Balogh, formerly CTO at VeriSign, and a renewal and expansion of Yahoo’s long-standing deal with AT&T, which now includes mobile. Balogh replaces “interim CTO” Yahoo co-founder David Filo, who stepped in to fill the role after former CTO Farzad Nazem resigned early last year.

Here are some charts from the earnings presentation:

There were some areas of strength for Yahoo:

–Marketing services’ net revenue grew
–CPM pricing was strong; display ad revenues grew 20 percent in the second half of last year
–Revenue per search grew both in the US and internationally, and search revenue from US Yahoo “owned and operated” sites (vs. affiliate or partner sites) grew roughly 30 percent in the fourth quarter
–Query volume grew roughly 8 percent during the same period

The company renewed its relationship with long-time partner AT&T. Yahoo will continue to manage and provide ads (search and display) to the AT&T-Yahoo start page/portal for AT&T DSL customers. The deal has now expanded to include mobile (AT&T is the largest mobile carrier in the U.S.). Previously Yahoo had received part of DSL subscriber fees, but now the deal will be exclusively an ad-revenue sharing arrangement. This is seen widely as the product of a stronger AT&T negotiating with a weakened Yahoo. Roughly $200 to $250 million was estimated to flow to Yahoo annually from the prior deal structure.

This year promises to be tough for Yahoo, with a soft economy, fierce competition in search and display advertising, and uncertainty surrounding the company’s ability to execute on its relatively new three-pronged strategy to become the start page for consumers on the Internet, a more open platform for outside publishers and developers, and a “must buy” for advertisers.

Some articles this morning are highly critical of the company, arguing that the layoffs offer cost savings but not much more and that Yahoo hasn’t really articulated a vision or offered products that will enable it to regain momentum. Mobile is an area of strength for the company but not yet a meaningful revenue producer.

There may well be a distorting disconnect between the Silicon Valley culture of “buzz” and novelty vs. the larger society, which is interested in utilitarian products and services that meet ordinary and practical needs. Yahoo should avoid worrying about keeping up with the Twitters and instead focus on building products that help people accomplish practical and immediate objectives in their daily lives. This still includes mobile and social media but not necessarily things like “Yahoo Live.” In addition, Yahoo appears to be dropping the ball in local, which has historically been an industry-leading product.

Here’s the Q4 earnings call transcript and more discussion of Yahoo earnings and the company’s future at Techmeme.

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