When Yahoo reported its quarterly earnings Wednesday, about the only thing on the rise was company executives' use of the term "economic downturn."
The phrase, or variants like "continued consolidation in the Internet sector," came up liberally in explanations of why Yahoo's latest earnings are down substantially over the past year. The company's revenue came in at $180 million for the first three months of 2001, slightly better than the $172 million Wall Street analysts had expected, but still down more than 20 percent from the same period last year.
The market malaise was also cited as the culprit for why Yahoo (YHOO) expects earnings in its next quarter to show no improvement. The company projected that it would report at best a break-even quarter, and at worst a $10 million loss, in earnings before interest, depreciation and amortization, or EBITDA.
The downturn, and the resultant pressure it puts on a company to shave expenses, were also a factor behind the company's plan to take the difficult step off cutting approximately 12 percent of its 3,510-member staff.
"We made some decisions that are tough, but are right for our business," said Tim Koogle, Yahoo's chairman and chief executive, who recently announced that he will resign as CEO. He said the company is interviewing several replacement candidates.
As far as the staff members who aren't departing voluntarily, executives said the cuts were a response to a general slowdown in business. They estimated the job cuts would save Yahoo between $7 million and $9 million a quarter.
Besides cutting jobs, Yahoo said it will reduce its marketing budget, cut discretionary spending by employees that aren't fired, do more outsourcing, and move some of its far-flung global operations to central offices.
Yahoo executives declined to offer a guess as to when the market downturn, or period of consolidation, or whatever you want to call it, will come to an end. Koogle described current conditions as "temporary." Sue Decker, Yahoo's chief financial officer, said the company is expecting ad spending, Yahoo's main source of revenue, to remain slow.
Decker said the company is "planning for a continuation of current trends with respect to budget and costs" for the rest of the year. For the full year, Yahoo is forecasting EBITDA earnings of between break even and $50 million.
In many ways, the circumstances Yahoo faced in the first three months of the year weren't too different from the previous quarter. Advertising spending by dot-com companies, predictably, took a further hit as more Net firms went out of business or slashed marketing budgets to avoid going out of business.
On a positive note, Decker said, the company is seeing a higher percentage of ad revenue coming from larger, more stable firms. At the end of the quarter, Yahoo had 3,145 advertisers, including such industry heavyweights as Pepsi, Kia Motors and Miller Brewing. That number will probably drop in the next few quarters, however, as more dot-coms go away.
As far as profits go, Yahoo did a little better than expected. After telling investors in March to expect flat quarterly earnings, as measured by EBITDA, the company actually reported a profit, by that measure, of $7.6 million or 1 cent per share. That was down from a gain of 10 cents a share by that accounting method in the same period last year.
Still, the company reported a net loss for the first quarter of $11.5 million or 2 cents a share, down from a profit of 11 cents a share, compared to net income of 11 cents a share in the first quarter of 2000.
Investors reacted to the earnings news positively, pushing up Yahoo's stock 5 percent in after-hours trading to $16.84.
The results will also have implications beyond Yahoo's own weather-beaten stock. Because the Santa Clara, California, company is the first large Internet firm to report its quarterly numbers, investors frequently view it as a bellwether for the Internet sector overall.
"I think Yahoo will set the tone in many ways," said Paul Noglows, analyst at J.P. Morgan.
