Yahoo announces Q1 income decline, staff cutbacks

After twice lowering the bar on its first-quarter earnings and revenue targets, Yahoo Inc. finally hit its mark, posting slightly more than break-even results Wednesday for the quarter ending March 31, led by a growth in business services.

The company posted net revenue totalling US$180.2 million, compared to $230.8 million for the first quarter last year, citing a marked drop-off in online advertising as the cause of the company’s lacklustre results. First quarter net revenue was down 22 per cent year-on-year. Pro forma net income came in at $7.6 million, and diluted net income per share totalled $0.01, with $0.04 in cash earnings per share.

Last year pro forma net income was $60.5 million, or $0.10 per diluted share for the first quarter.

This quarter’s figures only slightly outperformed revised analysts expectations; a First Call/Thompson Financial census of analysts predicted “no gain” for the quarter.

To help manage expenses, Yahoo also announced that it will reduce its workforce of 3,510 employees by approximately 12 percent within 30 days. The company declined to specify which areas of its business would suffer the job cuts, however, because that the affected employees had not yet been notified.

In lieu of dwindling advertising,Yahoo issued an earnings warning Jan. 11, predicting per share earnings of between $0.33 and $0.43, considerably less than the $0.57 Wall Street was anticipating. Further feeling the pinch of the dot-com downturn, the company released a second earnings warning March 7, stating it only expected to break even, with revenues between $170 and $180 million.

Last year, the Internet search, communications and commerce giant relied on advertising for 90 percent of its revenue.

In a conference call with press and analysts last Wednesday evening, Yahoo top executives said that the company is adopting a new strategy given the current economic slump, whereby it will focus on potentially high-growth areas while reducing its cost base. In terms of reducing fixed costs, Yahoo chief financial officer (CFO) Susan Decker said that the job cuts are expected to save the company anywhere from $7 million to $9 million a quarter.

These changes will spell higher profits toward the end of the year, Decker said, although the company is foreseeing higher expenses next quarter due to compensation hikes, rising energy costs and new facilities. The CFO maintains that the second quarter will be the only quarter where Yahoo will post a loss in EBITDA (earnings before interest, taxes, depreciation and amortization) however.

In the second quarter, the company is expecting $165 million to $185 million in pro forma revenue, and earnings per share to break even.

The first quarter results were announced after the market closed on Wednesday. Yahoo’s stock ended the day at $15.91, a small strengthening from the 52-week low it hit April 3 at $11.375. The stock has been given a beating in the volatile tech market, losing 90 per cent of its value from its one-time high.

Yahoo also announced Wednesday that its senior vice president of International Operations Heather Killen is expected to leave the company in mid-June.

The company has hired Switzerland-based executive search firm Egon Zehnder International to replace her.

Yahoo, based in Santa Clara, Calif., can be reached at

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