Yahoo! on Tuesday reported that its net profit slumped nearly 80 per cent in the first three months of the year and that it will trim its workforce by five per cent.
Yahoo! said its net income for the first quarter was 117.6 million dollars, or eight cents per share, compared to 536.8 million dollars, or 37 cents per share, during the same period last year.
"Yahoo! is not immune to the ongoing economic downturn, but careful cost management in the first quarter allowed our operating cash flow to come in near the high end of our outlook range," said Yahoo! chief executive Carol Bartz.
"With our leading audience properties, substantial reach and innovative advertising solutions, we are confident Yahoo! will be well positioned when online brand advertising resumes its growth," she added.
In a statement, Yahoo! said it expects to "reduce its number of current employees worldwide by approximately five percent" to "allow flexibility for accelerated strategic investments and targeted hiring in its core operations."
Workers being cut from the payroll will get word during the coming two weeks, according to the Sunnyvale, California-based Internet pioneer.
"Yahoo!'s balance sheet remains strong, and we are continuing to generate free cash flow which provides us the flexibility to make strategic investments in key talent, platforms, products and infrastructure, even during this economic downturn," said Yahoo! chief financial officer Blake Jorgensen.
Yahoo!'s earnings were in line with analyst expectations and the firm's stock price climbed about five percent to 15.03 dollars in after-hours trading that followed the release of the earnings report.
During a conference call with reporters and analysts, Bartz refused to discuss the possibility of Yahoo! selling its online search business to US software colossus Microsoft.
"The search business is critical to Yahoo!," Bartz said. "Relative to anything else with Microsoft, I have no comment."
Microsoft tried last year to buy Yahoo! for 47.5 billion dollars in a vain effort to merge online resources to better battle Google, which rules more than 60 percent of the US online search market.
Speculation that talks between Yahoo! and Microsoft might be resurrected has persisted since Bartz replaced Yahoo! co-founder Jerry Yang as chief executive in January.
Investors' ire regarding the botched courtship with Microsoft resulted in Yang surrendering Yahoo!'s helm to Bartz, a former Autodesk chief executive.
"I hit the ground running in January," Bartz said. "The most important take-away is the importance of having a 'Wow' experience for all our users around the world."
Analyst Rob Enderle of Enderle Group said that Yahoo!'s dismal financial performance was expected and that Bartz is shrewdly taking advantage of the fact the results will be blamed on the firm's prior administration.
Bartz commenced a corporate re-organization shortly after taking over at Yahoo!
"It is text book," Enderle said.
"The new CEO incurs as much cost as they can in the first couple of quarters because they are freebies. If Yahoo! is not showing strong improvements by the fourth quarter, then we start to worry."
Bartz said that the coming job cuts are intended to eliminate redundancy and stop resources from being squandered on projects that aren't generating user interest or which can be effectively outsourced.
"The next step is to reallocate resources to support our strategy," Bartz said.
"This is not the kind of across the board cost reduction Yahoo! undertook before. It is a natural outgrowth of the work we are doing."
Bartz said Yahoo! plans to bolster its ranks of engineers while shaving away unneeded layers of management. Her list of key Yahoo! offerings includes email, search, mobile, and its news pages.
"While the economy affected our revenue our user engagement remained strong," Jorgensen said.
"At the end of the day, people are spending their time on line searching but they are searching for a job and not a hotel in Las Vegas and that is affecting the return-on-investment for our advertisers."
Bartz and Jorgensen expressed confidence that Yahoo!'s main money-maker, online display advertising, will rebound with the economy.
She announced that Yahoo! will host analysts on October 28 to resume the practice of letting them take closer looks at what is happening with the company.