Yahoo Reports Earnings, Will Trim 15 Percent of Workforce

About 1,700 of 11,000 full-time employees will lose their jobs over the next several months as the company becomes smaller and more focused.

Yahoo made public its Q4 and year-end 2015 financial results February 2, and as had been reported a day earlier, the Web search and services provider also submitted a plan to cut back 15 percent of its workforce to scale back operations and focus on fewer businesses.

As a result, about 1,700 of 11,000 full-time employees will lose their jobs over the next several months at the 22-year-old Sunnyvale, Calif.-based Web pioneer, which was founded in January 1994 as Jerry (Yang) and David (Filo)'s guide to the World Wide Web, and then renamed Yahoo a year later.

CEO and President Marissa Mayer said on a conference call to analysts, investors and journalists that the company also will close an unspecified number of business units and company projects to control costs. In an earlier move, Yahoo shut down its video portal on January 3.

Quarterly Revenue Up Slightly

In the earnings news, Q4 revenue was reported to be $1.27 billion, an uptick from $1.25 billion in 2014. Operating earnings totaled 13 cents a share, which squared with Wall Street forecasts. However, Yahoo investors earned 30 cents per share in the fourth quarter of 2014.

The 13-cent earnings return was due to the company taking a "goodwill" charge of $4.46 billion in the quarter for "certain businesses, including its blogging site Tumblr," which it acquired for $1.1 billion nearly three years ago. The company also cited unfavorable international exchange rates for the U.S. dollar, which has been gaining strength against world currencies for several years.

In calendar year 2015, Yahoo banked $3.37 billion in worldwide digital ad revenue—mostly on desktops—which amounts to a mere 2 percent of the market, according to eMarketer. That number is down from 2.4 percent a year ago.

"I'm pleased to report that our Q4 performance exceeded guidance," Mayer said. "We continue to be encouraged by the performance of our Mavens investments, which in 2015 grew to about a third of our GAAP [Generally Accepted Accounting Principles] revenue to $1.6 billion."

'Mavens' Products Are Growing Revenue
Mavens (mobile, video, native, social) revenue represented 33 percent and 28 percent of traffic-driven revenue in the fourth quarter and full year 2014, respectively, and increased to 39 percent and 36 percent in the fourth quarter and full year 2015.

In search, Yahoo continues to struggle, as it has since Google claimed market dominance 15 years ago. The company claimed only 2.1 percent of the $94 billion worldwide search market in 2015, and eMarketer said it expects the company to stay flat in that category this year.

The company also said that one of its directors, Charles Schwab, has resigned from the board.

The company ostensibly is being forced by activist investors who don't believe in the competitiveness of Yahoo anymore to sell off its main business and keep the corporate identity of Yahoo as a shell to manage the rest of its assets—which consist mostly of its $30 billion stake in Chinese online retail sales site Alibaba.

What the Strategic Plan Entails

Yahoo's strategic plan to simplify the company and "better fuel growth, drive revenue and increase efficiency in 2016 and beyond," revealed February 2, includes the following data points:

  • Improve consumer and advertiser product quality and grow daily active users;
  • Drive continued growth in revenue realized through Mavens (mobile, video, native and social) to $1.8 billion this year;
  • Improve profitability to reach an adjusted run rate of approximately $1 billion by the second half of 2016;
  • Reduce operating expenses by more than $400 million by the end of 2016;
  • Limit GAAP revenue impact of product and regional exits to approximately $100 million;
  • Explore nonstrategic asset divestitures that, if consummated, could generate in excess of $1 billion in cash, and
  • Deliver increased value to shareholders, advertisers and the more than 1 billion people who use Yahoo's products and services.

Some opportunities have slipped by, to the ire of some investors. In 2008, Microsoft offered to buy Yahoo outright for $44 billion when its market cap was $47 billion. But Yang managed to get the board to rebuff the offer. Yahoo's market cap today is $27.44 billion.

Key Data Points on Yahoo's Business

For the record, here are a few market metrics on Yahoo provided by Finland-based Verto Analytics:

  • Yahoo's net reach (among all online universe) is 93 percent (229 million users).
  • Mobile reach (among mobile users) is 77 percent (135.6 million mobile users).
  • 15 percent of all time spent on digital devices has something to do with Yahoo, Inc.
  • On average, Yahoo users spend 18 hours a month on any of Yahoo's properties.
  • Yahoo Messenger and Yahoo Mail are Yahoo's most engaging properties (including both PC and mobile), with the average user spending 14 hours a month on the first and 13 hours a month on the second.
  • Mobile Tumblr (blogs) and Yahoo Mail are the most engaging apps, with Tumblr users spending on average 3 hours a month using the app; Yahoo Mail users are spending about 2 hours a month on the app.
  • Yahoo's flagship mobile app reach (among mobile users) is 26 percent (45.8 million users), Yahoo Mail app is 20 percent (34.8 million users), Tumblr is 18 percent (31.9 million users) and Yahoo Answers is 18 percent (31.8 million users).
  • Yahoo Messenger (13 hours/month/user) and Tumblr (8 hours/month/user) engagement levels are higher than almost any of Google's properties, including popular properties such as YouTube (6 hours/month/user). Yahoo's challenge appears to lie in growing its user base to match that of Google; however, the current Yahoo user base is, on average, more loyal.

"Despite the fact that the '90s were Yahoo's golden years, the company remains relatively well stacked in today's digital environment," Hannu Verkasalo, CEO of Verto Analytics, told eWEEK in a media advisory. "They have a relatively strong portfolio of services and apps, many of which are being used a lot on mobile. Yahoo's flagship app/site reaches 46 million U.S. consumers per month on mobile, and both Yahoo Mail and Tumblr have sizable mobile audiences, with 35 million and 32 million unique monthly mobile users, respectively.

"In the United States, 15 percent of total online time spent has something to do with Yahoo. While behind Facebook and Google, Yahoo is well positioned to play a strong game in the future, too; however, current shareholders are not making it easy for the executive team to focus on the execution on top of these media assets," Verkasalo wrote.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...