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Yahoo will cut staff 10 percent or more; Q3 disappoints

Juan Carlos Perez | Oct. 22, 2008
Yahoo will lay off at least 10 percent of its global staff before the end of the year.

Yang also said he was satisfied with the traffic and the audience engagement generated by Yahoo Web sites and on-line services during the quarter.

Still, the layoffs, Yahoo's plunging stock price and the sagging revenue will no doubt re-ignite the criticism from naysayers who blame Yang and Yahoo's board for causing the collapse of Microsoft's attempts to buy the company earlier this year.

In May, after a three-month pursuit, Microsoft walked away from the deal after a $33 per share offer was rejected by Yahoo's board, which sought a $37 per share offer. Yahoo's stock closed at $12.07 on Tuesday.

In addition, Yahoo's results look particularly bad when compared to those of its rival, Google, which reported solid third-quarter results last week. Both Google and Yahoo generate most of their revenue from on-line advertising.

Google reported revenue of $5.54 billion for the quarter, up 31 percent compared with last year's third quarter. Net income was $1.35 billion, or $4.24 per share, compared with $1.07 billion, or $3.38 per share, in 2007's third quarter.

A big difference is that Google's revenue comes mostly from search advertising, a segment it broadly dominates and which makes up the largest, most robust on-line ad format. Yahoo, on the other hand, is stronger in display advertising, where demand has weakened.

In August of this year, Google handled 63 percent of all search queries in the U.S., while Yahoo's share fell to 19.6 percent, according to comScore. The story was much different a few years ago. In February 2004, Google controlled 34.7 percent of U.S. searches, while Yahoo's share was 30 percent, according to comScore.

The evolution of the search engine market led to Yahoo's deep crisis. If Yahoo had remained competitive in search, it would be generating significantly more revenue from search advertising and likely finding itself in a much stronger position.

Financial and industry analysts agree that over the past five years, Yahoo has lost its technology edge, which has caused it to miss major growth opportunities in areas like search, on-line video, blogging, syndicated feeds and social networking.

This year, as the Microsoft drama unfolded, Yahoo has seen a steady exodus of high-profile staffers, as these formerly loyal and committed business and technology leaders give up on the company and morale drops.

Google and Yahoo signed a deal in June to let Yahoo run search ads provided by Google. Google and Yahoo had expected to turn on the deal's switch early this month, but have delayed the implementation, while they wait for the U.S. Department of Justice to examine the antitrust implications of the agreement. Yang said the companies continue their conversations with the DOJ.

 

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