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Yahoo lays off 15% of staff after posting a massive loss

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Posted at 3:20 PM, Feb 02, 2016
and last updated 2016-02-02 17:22:04-05
By David Goldman

NEW YORK (CNNMoney) — Embattled CEO Marissa Mayer believes that a leaner, more focused Yahoo is the solution to its growth problems.

Yahoo announced a massive loss last quarter and said it will lay off 15% of its workforce as part of a plan to return the company to “modest to accelerating growth” next year and in 2018.

The new plan, announced Tuesday afternoon, will focus on Yahoo’s core strengths: Its services (Search, Mail and Tumblr) and its media brands (News, Sports, Finance and Lifestyle). The company will also streamline its advertising platforms and close five global offices.

Yahoo expects the restructuring to save the company $400 million this year. It is also looking to sell off non-strategic parts of the company, which could generate more than $1 billion in cash.

It will also explore “strategic alternatives.” Though the company didn’t define it, that’s typically code for “we’re taking offers for a sale.”

The new growth strategy gives Mayer another tool to fight off a looming fight with activist shareholders, who want to wrest control of the company away from her. By making Yahoo leaner and more profitable, Mayer could gain some key supporters.

Angry investors, led by hedge fund Starboard Value, say that Mayer and her team have made no progress over the past three-and-a-half years in their attempt to turn around Yahoo’s fortunes. Despite spending billions of dollars buying numerous companies, changing the company’s logo and hiring A-list media personalities, Yahoo’s core Internet advertising business has continued to lose ground to Google and Facebook.

Yahoo’s board has continued to have Mayer’s back. Together, they staved off a potentially ugly battle for control of the company in December, when Yahoo agreed with Starboard’s demands to spin off the core Internet business into a separate company and keep Yahoo’s 15% stake in Alibaba, potentially saving billions of dollars in taxes.

But Starboard wasn’t satisfied with that plan alone. In January, the company’s manager Jeffrey Smith called for “significant changes across all aspects of the business starting at the board level, and including executive leadership.”

There’s no guarantee that Mayer’s new plan will succeed. Yahoo has already tried mass layoffs, reducing its staff by about a quarter since 2012, just before Mayer took over.

But a sale is one potential road out that might appease shareholders, activist investors, Yahoo’s board and Mayer alike. AOL-owner Verizon has publicly stated that it would consider buying Yahoo, and private-equity firm TPG Capital is rumored to have expressed interest.

Meanwhile, Yahoo’s fourth-quarter earnings were something of a disaster.

Profit

2014: $166 million 2015: -$4.4 billion

Yahoo took a massive, $4.5 billion writedown on some of its biggest brands, including its U.S., Canadian, European and Latin American businesses. It also wrote down much of the value of Tumblr, the social blogging platform it purchased for more than $1 billion.

Sales

Fourth quarter of 2014: $1.25 billion Fourth quarter of 2015: $1.27 billion, up 2%

Prior to the past quarter, Yahoo’s sales had declined in four of the past six quarters.

Next quarter, Yahoo said it expects to bring in between $820 million and $860 million in sales. That’s well below Wall Street analysts’ median estimates of $907 million.