Yahoo Inc. said Tuesday that it would lay off at least 10% of its workforce over the next few months as it grapples with the deepening economic crisis, continuing the Internet pioneer’s tough run since it spurned a buyout offer from Microsoft Corp. this year.

With the online advertising market feeling the burn of a drop in consumer spending and tightening credit, Yahoo delivered a lackluster third- quarter report and lowered its revenue forecast for the rest of the year. Executives said the company was taking steps to ride out a prolonged downturn.

About 1,500 employees will lose their jobs as part of Yahoo’s plan to slash costs by $400 million from its annual expenses of $3.9 billion in the next few months. Yahoo is based in Sunnyvale, Calif., and also has offices in such cities as Santa Monica, San Francisco and New York. It declined to say where the cuts would occur.

In addition to trimming its staff, the company is looking for lasting ways to make the company run leaner such as consolidating offices, sending more work overseas and flattening its management structure, Yahoo Chief Executive Jerry Yang told analysts.


The company earned $54.3 million, or 4 cents a share, down 64% from $151.3 million, or 11 cents, a year earlier. Revenue rose 1% to $1.79 billion. Excluding commissions paid to ad partners, Yahoo’s revenue was $1.32 billion, about $50 million below analyst estimates.

President Sue Decker said the company would continue to balance investing in new products with keeping a tight grip on costs. Yahoo hired consulting firm Bain & Co. last month to evaluate expenses. “This is a top-to-bottom review,” Decker said in an interview. “We are looking at everything.”

This is the second time this year Yahoo has promised mass layoffs to reverse its sliding fortunes, which have dragged its stock price to a 5 1/2 -year low.

Analysts say Yahoo now seems more determined to cut costs than it did in February, when it jettisoned about 1,000 workers only to replace them -- and more -- within a few months. Yahoo has increased its staff by 1,400 during the last two quarters to 15,200.


Yahoo’s shares gained 5% to $12.70 in after-hours trading after the report. They ended the regular session down 79 cents at $12.07.

It’s a far cry from the $33 a share Microsoft offered in May, points out Anthony Valencia, media analyst for TCW Group in Los Angeles. Microsoft has since expressed interest in buying only Yahoo’s search business. Last week Microsoft CEO Steve Ballmer again raised the possibility during remarks at an industry conference but said the two companies were not in discussions.

“While the credit crisis and precipitous stock market declines are not the fault of Yahoo management, the fact of the matter is that over 1,000 employees who may have been retained by Microsoft are now losing their jobs while shareholders are stuck with a stock price that is 60% less than what they could have received,” Valencia said.

Also casting a dark shadow: years of disappointing profit and revenue growth, Motley Fool analyst Rick Munarriz said. “It’s a company that has gotten too fat for its own good and too stagnant for anyone’s good,” he said.


Yahoo lowered its 2008 revenue estimate to a range of $7.18 billion to $7.38 billion, from its forecast three months ago of $7.35 billion to $7.85 billion.

Its troubles are the latest sign that the credit crunch has spread to Silicon Valley. Online auctioneer EBay Inc. is cutting 1,600 jobs and a growing number of start-ups are following suit to conserve cash as venture capitalists pull tight the purse strings. Even free-spending Google Inc., which dominates the lucrative online advertising business and showers employees with perks such as free food, has reined in expenses.

But Yahoo is far more vulnerable than Google, the Internet search leader, which last week reported a 26% increase in third-quarter profit. Yahoo focuses on display advertising, which is harder to sell in an economic downturn than Google’s text search ads. Yahoo’s search advertising revenue rose 17% while display increased just 3% and ads on Yahoo partners’ sites fell 10%.

Yahoo is awaiting the outcome of a Justice Department review of its proposed search advertising partnership with Google, which Yahoo says could add hundreds of millions of dollars in revenue.


Yahoo also has discussed folding AOL into Yahoo with AOL parent Time Warner Inc. taking a minority stake. Decker would not comment on the talks but said Yahoo would be opportunistic if it found “the right opportunity.”

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jessica.guynn@latimes.com