Yahoo needs bolder moves in turnaround

Mario Anzuoni / Reuters

Yahoo! has announced its sixth major round of layoffs in about four years.

By Roland Jones

Yahoo?s announcement that it is eliminating 2,000 jobs or 14 percent of its workforce was a painful step that nevertheless might not be enough to right the sinking ship of the Internet firm.

The massive layoff announcement Wednesday had been telegraphed for some time, especially since news began leaking in early March that new CEO Scott Thompson was preparing a major restructuring of the company, including significant layoffs.

The latest layoffs, aimed at cutting $375 million in annual costs, represent the sixth round of job cuts in about four years under three CEOs.

?While such actions are unfortunate, we think in Yahoo?s case it was probably warranted and overdue, especially given that Yahoo?s revenues per employee have been much?lower than those of peers,? S&P Capital IQ analyst Scott Kessler said.

Even after the layoffs there is still room for greater efficiency, and so there?s a possibility of more cost-cutting measures ahead, Kessler added.

Kessler and others expressed skepticism about Yahoo's ability to turn around its business. The company's stock rose 9 cents in heavy Nasdaq trading Wednesday to close at $15.27, about where it has hovered for several years.

?One of the reasons today?s news is hard to deal with is it?s short on details; there?s not a lot of clarity about which part of the company Scott Thompson wants to emphasize,? he said. ?So it?s hard to say when the efforts to streamline the company will conclude.?

More details were promised when the company releases first-quarter financial results April 17.

In an email to employees Wednesday, Thompson outlined his plan to focus Yahoo on a select group of core businesses, including media and communications, platforms and data sets.

?We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities. Our goal is to get back to our core purpose -- putting our users and advertisers first -- and we are moving aggressively to achieve that goal,? he said.

Rob Enderle, an analyst with Enderle Group, said the layoffs were likely too small, given the extent of the problems Yahoo faces.

?The first thing Yahoo needs to do is get the layoffs right,? Enderle said.

?There?s a textbook way to do this; it should be deep and fast, so you can take the company to a place where you can ramp up hiring again,? he said, noting that the shallowness of Yahoo?s job cuts could bring problems down the road. Remaining employees will be fearful of losing their jobs, and so less productive, and the company may have trouble attracting top talent to drive its turnaround.

?Nobody wants to work for a company that?s laying people off,? he said.

The onetime Internet pioneer has struggled in recent years, its dominance eroded as it has been challenged and overtaken by new entrants, such as Google, and the advent of social media, led by Facebook.

The company has also faced a series of leadership challenges. Former CEO Carol Bartz was fired late last year and replaced by ex-PayPal chief Thompson. Co-founder and former CEO Jerry Yang left the company in January.

Thompson now faces a number of challenges, including growing stagnant revenue.

Thompson must also find a way to sell Yahoo?s valuable Asian assets, which are worth around $20 billion, and he faces a proxy battle with the company's biggest shareholder, hedge fund investor, Dan Loeb, who owns at 5.8 percent stake. Loeb has expressed frustration at the pace of change at Yahoo and has proposed new board members for the company.

Yahoo has also jumped into an intensifying patent war with Internet heavyweight Facebook, demanding that the social media giant pay it licensing feeds to cover social networking patents. Facebook this week countersued.

Yahoo?s difficulty now is to define how it will grow, Enderle said. Thompson needs to put forward a fully articulated strategy.

?People expect the worst becomes don?t know what the plans are,? he said.

Two companies are now focused on the content aggregation business online -- Yahoo and AOL, and neither is doing well, he said.

?This begs the question of whether there really is a market for that,? Enderle said.

Reuters contributed to this report.

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