Yahoo Slimming Down Again, Vying for America's Biggest Loser?

Yahoo, Inc. (NASDAQ: YHOO) may be wishing it had played more nicely with Microsoft (NASDAQ: MSFT) when Microsoft offered $33 per share in May. At the time Yahoo rejected the bid saying that Microsoft was undervaluing the company. Since then the market has voted for a value of under $13 per share for Yahoo as it continues to lose market share to Google (NASDAQ: GOOG). On Tuesday, Yahoo declared that it will reduce its workforce by 1500 workers and slash spending by as much as $400 million dollars for the year. Yahoo will outsource some jobs to lower-priced overseas workers and will close some its US offices.

Yahoo's third quarter earnings were down 64% over the same quarter a year ago, leaving investors to wonder "What were they thinking" when the Yahoo board rebuffed Microsoft's $33 per share offer. Profit for the quarter was a meager four cents per share. This comes despite competitor Google reporting a 26% increase in Q3 earnings. Even though Yahoo blamed their current troubles on the ailing economy, that's a hard pill to swallow when direct competitors are still growing.

Yahoo's CEO Jerry Yang told investors when rejecting Microsoft, that he was embarking upon a strategy that would unlock a much higher value for Yahoo than was then being offered by Microsoft. Somehow he remains in charge of the company. When asked how he saw the weak economy's impact on Yahoo's performance next year, Yang offered this bit of insight, "I don't think we have any visibility into '09." Brilliant. Meanwhile, Yahoo is apparently banking on its pending deal with Google to save the company. Businessweek reported that Yahoo hopes to earn $250-400 million from the deal each year if it is approved by the Justice Department. That doesn't seem enough to get the stock back to $33 per share, but who knows. Meanwhile, with analysts busy cutting their estimates of Yahoo's future performance, it's hard to see how the board could justify fighting off an offer of even $22-$25 per share if anyone were even willing to send such a generous missive.

Yahoo was up in early trading on Wednesday as investors reacted positively to Yahoo's second round of layoffs within the year. This comes, despite the Associated Press noting that Yahoo's workforce regained the 1000 positions they cut earlier in the year in just a few months. It seems the company may be on a yo-yo diet as it tries to trim the fat from it payroll. ""I believe getting Yahoo more fit at this time will provide the flexibility necessary for navigating current conditions and strengthen our position for the future," Yang said Tuesday as the company prepared to tighten its belt.

Meanwhile, Yahoo's staple diet of online advertising is being reduced across the board in the US as nearly everyone is looking for ways to cut costs and preserve cash as the recession is expected to linger. That's right, recession. We just call 'em like we see 'em. According to a recent CNN/ Opinion Research Group survey, 74% of you see it the same way, stating that you think we are already in a recession. Although this puts the economy firmly at the number one spot in voter's minds heading into the November elections, Yahoo CEO Yang and his supporters still see brighter days in the near future. Good luck, Jerry.