Web pioneer Yahoo Inc. (YHOO) plans to eliminate 14% of its workforce or about 2,000 jobs in order to reduce operational costs. This layoff is an attempt to optimize the cost structure, concentrate on the core businesses, and thereby improve the company’s competitiveness.
The workforce reduction will be conducted across all the divisions at Yahoo but the product division is expected to be hit the hardest. Along with other unspecified operational changes, the layoffs are expected to save $375 million upon completion of all employee transitions. Currently, the company expects $125 million to $145 million in a pre-tax cash charge relating to employee severance packages.
Management is looking to restructure its businesses by focusing on its online content properties and media business, which drive most of its revenue. In the fourth quarter, Yahoo posted a decent performance, with non-GAAP earnings beating the Zacks Consensus Estimate by a couple of cents.
However, despite being one of the biggest brand names, Yahoo has not done very well in the last few years. The social networking site Facebook and Google Inc. (GOOG) have been eating away its market share over the years.
In fact, the company has seen limited growth for quite some time, hence the new CEO, Scott Thompson is not leaving any opportunity for additional revenue generation. Thompson plans to provide more information about his strategy during the company’s first-quarter earnings announcement, which is scheduled for April 17.
Sometime in mid-March, Yahoo filed a patent infringement suit against Facebook alleging infringement of 10 patents. The counter-suit that Facebook filed against Yahoo’s patent infringement claims is simply the latter’s bad luck as it could drag Yahoo into a long drawn legal dispute.
We believe that Yahoo’s restructuring efforts are not enough to bring a total turnaround in the company. However, a leaner cost structure will boost margins and earnings growth in the near future.
The Zacks Rank on Yahoo shares is #3, which translates to a short-term Hold recommendation.
