Yahoo quarterly profit drops 23%

Yahoo posted a drop in quarterly profit last night and forecast 2008 revenue below Wall Street forecasts as it cuts jobs and invests to shore up its Web advertising business.

Shares in Yahoo fell nearly 11 per cent in extended trading. Yahoo's revenue forecasts for the upcoming year disappointed investors, even though Wall Street analysts have already slashed their expectations of Yahoo's ability to increase Internet advertising revenue in a weakened US economy.

The company warned that it faced "headwinds" in 2008 and outlined a plan to cut about 1,000 jobs. It also revised a deal with AT&T that will cut into revenue this year. The restructuring will lead to better cash flow in 2009, it said.

"Yahoo is a company and a business in transition," said Cantor Fitzgerald analyst Derek Brown, who rates the stock neutral. "The payoffs are not likely to show up until at least the second half of this year or perhaps sometime in 2009."

Most advertising sectors, including autos, pharmaceuticals, telecommunications and packaged goods, are off to a solid start this year and are expected to enjoy growing online budgets during 2008, President Susan Decker said.

However, financial, travel, and retail advertisers - sectors hit hard by the weakening economy - suffered declines from a year ago, Decker said. She cautioned that: "We're obviously watching economic developments very closely."

Fourth-quarter profit fell more than 23 per cent to $205.7 million, or 15 cents per share, from $268.7 million, or 19 cents per share, a year ago. Overall revenue rose 8 percent to $1.83 billion and revenue excluding payments to advertising partners rose 14 percent to $1.4 billion.

Analysts, on average, had forecast earnings per share of 11 cents on revenue of $1.41 billion excluding traffic acquisition costs, according to Reuters Estimates.

"(Fourth-quarter results) indicate they have already done some belt tightening from a cost standpoint," said Martin Pyykkonen, an analyst with Global Crown Capital.

But Yahoo's larger share of the corporate display ad market makes it vulnerable to spending pullbacks in a recession. Analysts expect archrival Google to fare better in a downturn with its dominance of paid search, a form of marketing where advertisers pay when customers click on ads.

Chief Executive Jerry Yang predicted a tough 2008 as he pledged to reduce the company's 14,500 employees by nearly 7 per cent. Job cut details will be announced in mid-February.

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