Yahoo announces 2,000 layoffs as new CEO seeks turnaround

SAN FRANCISCO — Yahoo Inc.’s decision to slash 2,000 employees, or 14% of its workforce — the deepest cuts in its 18-year history — marks new Chief Executive Scott Thompson’s seriousness about a sweeping restructuring of the troubled online company.

“It may be the only way CEO Thompson can effectively focus on the next generation of Yahoo,” Think Equity analyst Ronald Josey said in a research note.

Though Yahoo still has one of the largest audiences on the Web, it has been steadily losing ground to rivals Facebook Inc. and Google Inc. in the battle for advertising dollars.

Thompson, who came to Yahoo in January from his job running the PayPal online payment service, told employees in an email that the company would concentrate on its media and content services and the data it collects from the roughly 700 million people who visit its websites each month.

Thompson is wagering that Yahoo can sell more ads if it drills down into that rich trove of personal information. The Sunnyvale, Calif., company still owns some of the most popular news, sports and finance websites.

Analysts expect that Thompson will also shed some of Yahoo’s businesses, including search and advertising technology platforms, and that probably will result in more job cuts.

Thompson said he would reveal more about his plans April 17, when Yahoo releases its first-quarter financial results.

“Now that he has an entire quarter under his belt, that is really going to be his coming-out party,” S&P Capital IQ analyst Scott Kessler said. “This is his opportunity to talk about the things that everyone wants to hear about like strategy, areas of emphasis, areas of investment and what operations they are going to sell or discontinue.”

Kessler said Thompson had no choice but to purge employees to bring Yahoo in line with other Internet companies. The revenue that Yahoo generated per employee last year was only half the average generated by its peers.

And Yahoo fares even worse when stacked against its two biggest rivals. Yahoo, which had a workforce of about 14,000 before the latest cuts, produced revenue of $353,000 per employee, while Google and Facebook each produced $1.2 million per employee, Kessler said.

“That frankly just speaks to the fact that Yahoo has not grown at the level that the other companies have from a revenue perspective, and it also demonstrates that the company hasn’t been as proactive about managing its base of employees as it probably could have been,” Kessler said.

Workers losing their jobs were notified Wednesday. Yahoo estimated that it would save about $375 million a year because of the layoffs. The company said it expected to record a pretax cash charge of $125 million to $145 million for severance payments, mostly in the second quarter.

The layoffs “are an important next step toward a bold, new Yahoo — smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require,” Thompson said in a written statement.

Investors, frustrated by ineffectual efforts from two previous CEOs who made similar promises, stayed on the sidelines. Yahoo stock barely budged, rising 9 cents Wednesday to $15.27. The stock has fallen about 8% since Thompson joined.

Analysts cautioned that Thompson can’t cut his way to a comeback, and that investors would wait for more concrete details on how he plans to kick-start growth. Thompson does have an impressive track record. At PayPal, where he was president, revenue doubled during his time there and the number of users topped 100 million.

“That’s the piece we are all looking for, for Scott Thompson to show some innovation and vision,” BGC Partners analyst Colin Gillis said.

Yahoo had revenue of $4.98 billion last year. But its share of overall U.S. online ad revenue, which reached 15.7% in 2009, declined to just 9.5% last year, according to research firm EMarketer. And even as the online ad market is expected to expand 23.3% to $39.5 billion in 2012, Yahoo’s share of revenue is expected to decline to 7.4%, EMarketer says.

Yahoo is also engaged in fights on two other fronts.

Its board of directors is under siege from Daniel Loeb, who runs hedge fund Third Point, Yahoo’s largest shareholder. Loeb is waging a bitter proxy battle to appoint four new directors. Since Thompson joined Yahoo three months ago, founder Jerry Yang and four other board members, including Chairman Roy Bostock, have stepped down. The company appointed five new directors to join Thompson on the board.

Yahoo also is embroiled in a heated patent dispute with Facebook. Yahoo sued Facebook last month, accusing it of infringing Yahoo’s patents.

Facebook denies the allegations and countersued Tuesday, claiming that Yahoo infringed its patents responsible for about 80% of its revenue last year.

[email protected]