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Yahoo Braces for More Layoffs Ahead of Earnings

Yahoo Earnings
Yahoo is set to report its first-quarter of earnings after the market closes today, marking the first period under the leadership of Carol Bartz and an earnings report widely expected to bring news of a new round of layoffs.

Like many Web firms, Yahoo (NASDAQ: YHOO) has taken a hit as the economic downturn has sapped advertising spending. Last quarter, Yahoo posted a net loss of $303 million, though that figure was weighed down by steep one-time charges amounting to $603 million.

This quarter, analysts are looking ahead to net revenue of $1.2 billion based on earnings-per-share of $0.08, according to polling by Thomson Reuters. That compares with earnings of 11 cents per share on $1.35 billion in the first quarter of 2008.

But analysts are also casting an eager eye toward the company's plans to manage its costs, expecting newly minted CEO Bartz to extend the company's staff reductions begun last year.

"She had a blank slate when she came in," Citibank analyst Mark Mahaney said in a recent interview. "I think it's pretty clear that she's been willing to go in to and make more personnel cuts. It seems reasonable that we're going to hear about those."

Last year Yahoo announced plans to cut its workforce by 10 percent, amounting to layoffs of around 1,500 employees.

But Mahaney said that the most important sign of Yahoo's health will be its search business. Yahoo, which handles about 20 percent of all search inquiries according to the most recent data from comScore, is dwarfed by its rival Google (NASDAQ: GOOG), which enjoys a 63 percent market share in search.

With Microsoft a distant third at 8 percent, the question of how to narrow the competitive gap with Google continues to bedevil Yahoo.

Heading into Yahoo's first-quarter earnings, that storyline remains unchanged from last year, as the prospect of some form of search partnership with Microsoft still casts a long shadow over the Web pioneer.

It was just a little more than a year ago that Microsoft's unsolicited offer to acquire the company outright rocked the tech world. Yahoo declined, opting instead to pursue a search deal with Google, which was ultimately abandoned due to antitrust scrutiny from the Justice Department.

In the meantime, Yahoo has been the subject of continued speculation about a limited ad partnership with Microsoft, whose CEO has repeatedly and publicly endorsed the idea.

So the companies have reportedly resumed discussions now that Bartz has replaced Yahoo co-founder Jerry Yang, who has been widely criticized for botching the Microsoft negotiations last year.

With revenues from display advertising a prime causality of the current economic downturn, search could be a key indicator of Yahoo's viability.

Analysts would likely welcome news of further layoffs as a sign of disciplined management. Renewed hope for a search deal with Microsoft would also likely buoy the company, but Standard and Poor's analyst Scott Kessler views such a tie-up as a distant prospect.

"We continue to believe that any type of search and/or advertising relationship between the companies would be difficult to strike and execute, especially in relatively short order," Kessler wrote in a research note.