Falling Profits as Yahoo Enters a Year of 'Transformation'

Big plans and some better-than-expected results weren't enough to keep jittery investors from souring further on Yahoo.

As it digs in for a year of rebuilding, Yahoo plans to cut jobs and revamp core businesses to better meet the threat of Google and other rivals. Jittery investors remained unconvinced, however.

While the company's quarterly earnings topped analyst consensus, the news wasn't good enough to keep the stock from slipping 10 percent in after-hours trading by press time.

Yahoo reported Q4 revenue of $1.8 billion -- 8 percent up from the same period last year, but slightly below analysts' projections of $1.9 billion. Minus traffic acquisition costs, revenue came in at $1.4 billion, in line with estimates.

The company's Q4 net income tumbled to $206 million, down from $269 million during the same period the previous year. Earnings per share were $0.15, off from $0.19 in Q4 last year, but well ahead of analysts' projections of $0.11.

Looking ahead, Yahoo projected net revenue of $1.28 billion to $1.38 billion for the first quarter of 2008. For the year, Yahoo said it expects net revenues between $5.35 billion and $5.95 billion.

"We see 2008 as a key year in our transformation," CEO Jerry Yang said, acknowledging that the coming period would be a time of substantial investment and development around businesses n which Yahoo expects to focus for long-term growth.

As Yahoo moves to strengthen its position against Google and other competitors, Yang said the company will move aggressively to position itself as the definitive starting point on the Web and broaden its advertising network.

Yang said this year of development and evolution would position the company to realize a double-digit operating cash flow increase by 2009. Yahoo reported an annual increase in free cash flow of 6 percent from 2006 to 2007.

Yahoo is also looking to its carrier partnerships to drive growth. The company announced today that it would expand a partnership with AT&T to become the carrier's chief provider of search and display advertising on both the att.net portal and through its mobile browser.

The announcement comes as Yahoo is working to restructure its carrier agreements to move from a fee-based to an ad-revenue sharing agreement, a shift that Yang said would become an important engine of future growth.

Overseeing the development of Yahoo's engineering efforts in this year of retooling will be Ari Balogh, who the company today announced would become its new CTO.

Balogh previously served as CTO for VeriSign.

Yang and CFO Blake Jorgensen also confirmed longstanding layoffs rumors: The company will begin cutting 1,000 jobs in February.

"This is a pivotal time for Yahoo's business and we have a unique window of opportunity right now to make the necessary, game-changing investments that will help us capture a significant piece of the growing ad market and create substantial long-term value for our shareholders," Yang said.

"While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash low growth in 2009," he added.

Yahoo's stock closed at $20.81, down nearly 40 percent from its 52-week high of $34.08.

TAGS: Google,search,Yahoo,AT&T

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