Yahoo said Tuesday that it would lay off at least 10 percent of its work force over the next few months to grapple with the fallout of the deepening economic crisis.

Share story

Yahoo said Tuesday that it would lay off at least 10 percent of its work force over the next few months to grapple with the fallout of the deepening economic crisis.

A slumping online-advertising market hammered Yahoo’s third-quarter profit, and the Internet company lowered its revenue forecast for the rest of the year.

At least 1,500 employees will lose their jobs as part of Yahoo’s cost-savings plan, which the company hopes will reduce costs by $400 million a year.

Yahoo is based in Sunnyvale, Calif., and has offices in Bellevue, Santa Monica, Calif., San Francisco and New York. The company didn’t say where the cuts would occur. The Bellevue office offered no comment.

It’s the second time in nine months that Yahoo has resorted to mass layoffs in what so far has been an ineffectual effort to rebound from a financial funk that has left its stock price near a 5 ½-year low.

The company said it also would achieve “substantial additional cost savings” by addressing “structural inefficiencies.” Earlier this year, Yahoo hired consultants Bain & Co. to help identify such cutbacks.

In a statement, Yahoo Chief Executive Jerry Yang said that economic conditions and online advertising had softened during the third quarter.

Yahoo projects that 2008 revenue will be between $7.18 billion and $7.38 billion, down from a forecast, issued three months ago, of $7.35 billion to $7.85 billion.

Yang said the company would continue to balance investing in new products with keeping a grip on costs.

“Despite a tough environment, we remain optimistic about Yahoo’s future,” he said during a conference call with analysts.

But the third-quarter numbers tell a grim story.

Yahoo earned $54.3 million, or 4 cents a share, a 64 percent decline from $151.3 million, or 11 cents a share, a year ago.

The profit in the latest quarter was knocked down by nearly $37 million in fees that Yahoo incurred during its negotiations with Microsoft and an unsuccessful attempt to replace its board of directors. Yahoo also absorbed a $30 million charge to account for the diminished value of an investment in Alibaba.com, one of China’s top Web sites.

If not for those one-time items and changes in its tax rate, Yahoo said it would have made 9 cents per share.

That figure matched the average earnings estimate among analysts surveyed by Thomson Reuters.

Revenue rose 1 percent to $1.79 billion. After subtracting commissions paid to advertising partners, Yahoo said its revenue stood at $1.32 billion — about $50 million below analyst estimates.

Yahoo’s determination to rein in its expenses seemed to please investors, who have been disillusioned with the company’s direction for years.

Yahoo shares on Tuesday lost 6.1 percent, or 79 cents, to $12.07 in regular trading, then gained 7.3 percent in after-hours trading after the report.

The depressed stock price is particularly galling to Yahoo stockholders, given that Yahoo had a chance to sell to Microsoft for $33 per share in May.

But Microsoft withdrew its offer after Yang balked at the price because he believes his turnaround plan would yield even bigger returns.

Yang’s rebuff is now looking like a horrible mistake as online advertisers rein in their spending to save money in what is expected to be the worst recession in a quarter-century.

Material from The Associated Press is included in this report.