Shares of former Internet giant Yahoo (YHOO) plummeted Wednesday morning after the company reported its fourth-quarter results after the close on Tuesday. While the numbers actually came in better than the Street had expected, additional announcements from CEO Marissa Mayer were clearly not what investors had been hoping to hear.
The company reported a staggering 15% decline in adjusted quarterly revenue (which excludes partner websites) to $1 billion. While the result beat out estimates at $948 million, this was the largest decline Yahoo has reported since Mayer took over as CEO in July 2012.
The company also reported a net loss of $4.43 billion (or $4.70 per share), which, adjusted for one-time expenses, came in just a penny better than expected at 13 cents per share.
But the real disappointment seemed to be Mayer’s comments on the conference call, when she not only mentioned that the company is exploring strategic alternatives such as a reverse spin-off of Yahoo’s Internet business, but also that the company would be laying off about 1,700 employees, or 15% of its total workforce.
In addition, Mayer also noted that Yahoo would be eliminating an assortment of services, including Yahoo Games and Yahoo TV, and five offices in Dubai, Mexico City, Buenos Aires, Madrid and Milan. Meanwhile, the company would also entertain the possibility of selling some of the company’s patents, real estate and other holdings to raise between $1 billion and $3 billion.
In total, the cost-cutting efforts are designed to save approximately $400 million annually to help simplify the company. The bulk of the cuts are expected to be completed by the end of March, and by the end of this year the company plans to have about 9,000 employees and fewer than 1,000 contractors.
Yahoo Has a Long Way to Go
Over the years, Yahoo has struggled to keep its share of online search and display ads in light of tough competition from companies like Facebook (FB) and Alphabet/Google (GOOGL). But during the conference call, Mayer said that Yahoo’s transition into a smaller, more focused company “will dramatically brighten our future and improve our competitiveness, and attractiveness to users, advertisers and partners.”
We’ll see. In the meantime, all of these changes mean that 2016 will likely end up being a transition year with lower revenue and earnings results. Looking ahead, Yahoo is expected to see adjusted revenue of $820 million to $860 million in the first quarter, which is a decline of at least 14% over last year. And for the full year, management expects a net revenue decline of 12% to 17%.
Wednesday’s decline is a continuation of the sharp pullback that the shares have endured over the last year, with the stock hitting a new 52-week low. After peaking in November 2014, YHOO has been in a downtrend except for a brief period late last year. As a result, it’s down about 48% from its five-year high and slightly less than 20% so far in 2016. There looks to be resistance ahead at $35, and then again at $45.
Someone tweeted me and asked what would happen to their email if Yahoo were to go under. I replied that it won’t go under … but if the stock gets down to a buck, I might consider switching to Google.
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