After seven months as chief executive, Yahoo Inc. co-founder Jerry Yang has concluded hundreds of employees will have to be fired to help the slumping Internet icon recover from years of misguided management.
The Sunnyvale-based company’s biggest purge since the dot-bust most likely will be announced next week, a person familiar with the matter said Tuesday. The person asked not to be identified because the exact number of jobs to be cut is still under discussion.
Yang and his management team already have committed to jettisoning at least several hundred jobs to help boost Yahoo’s profits and placate investors demanding more action to reverse a steep decline in the company’s stock price.
Securities analysts are betting Yahoo will trim its 14,000-employee payroll by about 5 percent — or 700 workers. If that many people are dumped, Yahoo could save about $100 million, JP Morgan analyst Imran Khan estimated in a Tuesday note.
Besides trimming Yahoo’s expenses, job cuts could help buy Yang more time to carry out his strategy to re-establish Yahoo as a main entry point to the Internet and create a more compelling online advertising network.
Many investors had been questioning whether Yang was too emotionally attached to the company that he started in 1995 to make the tough decisions needed to turn it around, said Standard and Poor’s equity analyst Scott Kessler.
“A lot of what drives the market comes down to perception and, rightly or wrongly, there is a perception that Yahoo needs to be repaired,” Kessler said. “To gain credibility, you need to make hard choices like this.”
From Wall Street’s perspective, the layoffs are long overdue. Through September, Yahoo generated just under $364,000 per employee, well below an average of nearly $565,000 per employee at six other major Internet companies, including Google Inc. and eBay Inc., Khan calculated.
News of the looming job cuts didn’t lift Yahoo’s stock Tuesday amid rising recession worries. Yahoo shares fell to a new 52-week low of $19.27 before rebounding to close at $19.92, down 86 cents or 4.14 percent.
Yahoo shares have dropped 28 percent since the company tapped Yang to replace Terry Semel as CEO in June.
Google shares have climbed 14 percent in the same period.
Yahoo, which prides itself on pampering employees, hasn’t resorted to a mass layoff since jettisoning 650 workers in 2001 to offset losses that piled up after a dramatic downturn in Internet advertising.
Although the company has remained profitable through its latest struggles, Yahoo hasn’t been making enough money to satisfy Wall Street at a time when advertisers are spending substantially more on Internet ads.
Google has been the biggest winner in the online ad derby so far, largely by outsmarting Yahoo, which was once the larger of the two companies.
Despite spending millions to improve its technology, Yahoo has been falling farther behind Google in the lucrative search market. Through December, Google processed 56 percent of all search requests in the United States, leaving Yahoo a distant second with 18 percent of queries, according to Nielsen Online. More importantly, Google now makes more money in a couple months than Yahoo does in a year.
Yahoo also has been struggling to retain younger Web surfers with the rise of hipper online hangouts like Facebook.com and News Corp.’s MySpace.com.
As part of its turnaround efforts, Yahoo has been phasing out its least popular services — a process that has accelerated under Yang’s leadership.
A social networking service called Yahoo 360 and a Europe-based comparison shopping service called Kelkoo appear to be the next candidates to go. Yahoo management is expected to discuss its plans for those two services Jan. 29 after the company releases its fourth-quarter earnings.
The layoffs probably will be outlined during the earnings conference call or a couple days later, according to the person familiar with the company’s timetable.