Yahoo's Bartz Starts Strong

The Net giant's new CEO turns in a solid first quarter, with more cost-cutting ahead

Yahoo reported first-quarter earnings Apr. 21 that were in line with analysts' expectations. Chris Hondros/Getty Images

By Robert D. Hof

Cost-cutting helped Yahoo! satisfy investors with its first-quarter earnings report on Apr. 21, and the company announced plans to cut 5% of its staff, on top of 1,600 job cuts in December. But the Internet icon left largely unanswered precisely how it would restore revenue growth beyond waiting for the economy to improve.

In these uncertain times, perhaps that's a question no company can adequately answer. Indeed, Yahoo (YHOO) Chief Executive Carol Bartz said in a conference call with analysts, "The economy clearly remains a challenge for us." Bartz said brand marketers put the brakes on ad spending, especially on display ads, the pictorial banners that are Yahoo's chief source of business. Display ad revenues on Yahoo's properties fell 13% from a year ago. What's more, Yahoo's search advertising business, which is much smaller than leader Google's, fell 3% after several quarters of strong, double-digit growth.

Still, analysts said they were impressed with Yahoo's ability to rein in costs, much as search rival Google (GOOG) managed to do last week. "The benefits of cost-cutting were visible," says Sandeep Aggarwal, an analyst with financial-services firm Collins Stewart (CLST.L). Yahoo's operating expenses fell to $779 million, or 49% of revenue, from 52% a year ago. And cost savings came not so much in key investment areas such as research and development but in marketing and administrative costs.

Street Not Disappointed

As a result, Yahoo's net income of $118 million, or 8¢ a share, matched analysts' expectations. That was down 78% from a year ago, though last year's results included a big gain from Yahoo's stake in the Chinese Internet company Alibaba, which staged a successful initial public offering. Yahoo's net revenue, excluding one-time charges and the commissions Yahoo pays partner Web sites for running ads, fell 15%, to $1.16 billion, slightly below analysts' forecasts.

Yahoo also issued guidance for second-quarter results that came in slightly under what analysts had been forecasting. Still, given the poor and unpredictable state of the overall economy, investors appeared to like what they heard, sending shares up about 5% in trading after the market closed. Just before the earnings announcement, shares had already risen 5%, to 14.38, partly on reports that Microsoft (MSFT) and Yahoo are talking anew about an advertising deal.

The latest round of layoffs at Yahoo, amounting to about 675 people, will come largely in engineering organizations, which are being consolidated internationally, Chief Financial Officer Blake Jorgensen told BusinessWeek in an interview. Bartz provided a more characteristically salty description of the changes she thinks are needed in product development, which will now be headed by Chief Technology Officer Ari Balogh. "We had a lot of people running around telling engineers what to do but nobody was ******* doing anything," she said on the conference call.

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