The Wall Street Journal-20080130-Yahoo Says It Faces -Head Winds-
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Yahoo Says It Faces 'Head Winds'
Full Text (620 words)Yahoo Inc. issued a sober revenue outlook, saying it faces "head winds" in 2008 amid weak online spending by some advertisers, prompting a 10% after-hours drop in its shares to 2003 levels.
The Sunnyvale, Calif., Internet company also announced it is laying off about 1,000 of its 14,300 employees in mid-February as it reported a 23% drop in fourth-quarter profit and an 8% rise in revenue. Some of the employees targeted by the layoffs will have the opportunity to find other posts at Yahoo in its priority business areas.
Analysts said Yahoo's results were roughly in line with their expectations but that the company's outlook for 2008 revenue of $5.35 billion to $5.95 billion when commissions paid to marketing partners are factored out was disappointing. The Wall Street average forecast was for $5.9 billion on that same basis, according to Thomson Financial. Yahoo's modest guidance comes amid concerns about whether any broader consumer slowdown will spill over into online advertising.
Yahoo indicated it saw weaker online-ad spending during the quarter among some categories of advertisers affected by broader economic issues. Spending by advertisers in the financial, travel and retail areas declined or grew more slowly in the fourth quarter compared with a year earlier, Yahoo President Susan Decker told analysts during a conference call. Still, "the majority of the key categories we serve are projecting online growth in budgets in 2008," Ms. Decker said, citing growing spending by advertisers in the auto, pharmaceutical, telecom and consumer-packaged-goods areas during the fourth quarter. "We've seen a solid start to the year -- at the same time, we're obviously watching economic developments very closely."
Yahoo struggled with staff turnover and slower-than-expected ad- sales growth last year. Led by Chief Executive Jerry Yang, Yahoo's management has pledged to streamline the company's operations and focus on a few priority areas. But investors have been impatient for Yahoo's management to take bold steps, like staff reductions. Yahoo reported results after regular trading hours. Its shares climbed three cents to $20.81 in 4 p.m. Nasdaq Stock Market composite trading. After hours, Yahoo shares were down to $18.71.
Yahoo also announced that it renegotiated a contract set to expire this spring with AT&T Inc. that shifts from focusing on selling Internet access together to sharing ad revenue and offering content on AT&T's TV service, Web portal and mobile services.
The new financial terms weren't disclosed but Yahoo said it expects to receive $300 million to $400 million upfront from AT&T as part of the contract. In exchange, AT&T will "retain full ownership of the customer relationship," an AT&T spokesman said, and will no longer share revenue from broadband subscriptions with Yahoo.
Fortunes have changed since 2001, when the two companies cut their initial deal. AT&T, which has been courted by Yahoo's rivals, no longer is interested in paying Yahoo a portion of the revenue from its broadband subscription business. But one person familiar with the matter said that Yahoo expects to exceed its annual revenue from the current deal -- which has been estimated around $250 million -- on average over the four-year life of the new agreement, when the upfront payment is factored in.
Under the new deal, Yahoo will provide search and display advertising for AT&T consumers on mobile devices and PCs. The two companies will share that revenue. It also includes a joint Web portal site and ensures subscribers of AT&T's new TV service will have access to Yahoo content.
Yahoo separately announced the appointment of Aristotle "Ari" Balogh, 43 years old, to fill its chief-technology-officer slot, which had been vacant since last year. Mr. Balogh was formerly the chief technology officer at VeriSign Inc., a Web-services company.
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Dionne Searcey contributed to this article.
