Mired in a deep slump, Yahoo will fire at least 1,500 workers to cope with a crumbling economy that dented its third-quarter profit and...

Share story

SAN FRANCISCO — Mired in a deep slump, Yahoo will fire at least 1,500 workers to cope with a crumbling economy that dented its third-quarter profit and turned up the heat on the Internet company’s management as investors stew over a missed opportunity to sell to Microsoft for $47.5 billion.

The purge outlined today represents a 10 percent reduction in Yahoo’s payroll of about 15,000 employees. 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.

Things got worse in the third quarter as Yahoo earned $54.3 million, or 4 cents a share. That was a plunge of 64 percent from $151.3 million, or 11 cents a share, at the same time last year.

It was far below the average earnings estimate of 9 cents a share 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 shares gained 67 cents, or 5.6 percent in extended trading after ending the regular session at $12.07, down 79 cents.

The depressed stock price is particularly galling to Yahoo stockholders, given that the Sunnyvale, Calif.-based company had a chance to sell to Microsoft for $33 a share in early May.

But Microsoft withdrew its offer after Yahoo Chief Executive Jerry 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.

Like most Internet companies, Yahoo relies on advertising for most of its profits.

Reflecting the downturn, Yahoo lowered its revenue estimates for the remainder of the year. Now Yahoo projects 2008 revenue of $7.18 billion to $7.38 billion — down from a forecast of $7.35 billion to $7.85 billion issued three months ago.

“We are going into what is very clearly a recession mode,” said Blake Jorgensen, Yahoo’s chief financial officer.

The downturn hasn’t derailed Yahoo’s biggest rival, Internet search leader Google, which said last week its third-quarter profit rose 26 percent.

But Yahoo is considered to be more vulnerable to advertising cutbacks because its marketing system doesn’t work as well as Google’s and it is more reliant on billboard-type ads that are less useful during tough times. Google, in contrast, specializes in text-based ad links that cost advertisers only when the ads are clicked on.

Yahoo has been hoping to boost its revenue by drawing on Google’s technology for some of the text ads shown on its Web site, but the proposed partnership is in limbo while the U.S. Justice Department investigates whether the alliance would undermine competition. Together, Google and Yahoo control more than 80 percent of the U.S. search advertising market.