A new broom sweeps more cleanly and the new broom at Yahoo! Inc. is Chief Executive Scott Thompson. In the deepest cuts for years at Yahoo! 2,000 people, 14 per cent of the workforce, have been removed from their employment. The new exec wants a smaller and more agile company and to cut the overheads, this round of staff cuts is estimated to save the company $375 million per year. Thompson is also planning to reshuffle certain Yahoo divisions and possibly sell off its ad-placement service as the company refocuses on its core business.
The stock market reaction to the news was muted. Shares were down slightly, shareholders almost always approve of a mass culling of workforce, but they have seen this before at Yahoo! with two previous Chief Executives failing to answer the challenges of Google and Facebook. Last year total revenue at Yahoo! was $4.98 billion compared to Facebook’s £3.71 billion. However the companies employed 14,000 and 3,200 people respectively, also as the revenue at Yahoo! declines, Facebook and Google have prospered.
Facebook and Yahoo! have also been in a legal battle; Yahoo! claimed Facebook violated 10 patents including aspects of advertising and social networking technology and Facebook have counter-sued Yahoo! over photo tagging, online recommendations and more.
Part of the lack of Yahoo! share price reaction is also probably due to investors waiting for first quarter results due shortly, on 17th April. Colin Gillis at stock brokers BGC Partners, said “You can’t cut your way to revenue growth. What people want to see out of Yahoo! is … a plan and provision for revenue growth.” While it is not a detailed strategy, Scott Thompson, in a memo about the job cuts, said “The changes we’re announcing today will put our customers first, allow us to move fast, and to get stuff done.” He continued: “We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities.” Investors are waiting for more details and plans, rather than mere tweaks to how Yahoo! currently works. Hopefully some of that information will come in the first quarter results statement.
As you can see from the revenue figures above, Yahoo! is still a big player. With new web trends emerging and taking off all the time (look at Pinterest) no one can count out Yahoo! from pulling off a big turnaround. All those Yahooligans! Who grew up to become avid Google and Facebook fans could come back to the big Y! one day.