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"We have been disciplined about balancing investments with cost
management all year, and have now set in motion initiatives to reduce
costs and enhance productivity," said Yahoo co-founder and CEO Jerry
Yang in a written statement.

“The steps we are taking this quarter should deliver both near-term
benefits to operating cash flow, and substantially enhance the
nimbleness and flexibility with which we compete over the long term,”
he added.

In a conference call after the results were announced, Yang said the
company was working to reduce costs in other ways than just slashing
jobs, including relocating offices and consolidating real estate. “We
are identifying ways we can operate more efficiently,” he said.

Yahoo (YHOO, Fortune 500) reported revenue of $1.79 billion in the
quarter ended Sept. 30, an increase of 1% from the $1.77 billion in
the same quarter one year ago.

Excluding commissions paid to advertising partners, Yahoo posted sales
of $1.33 billion, slightly lower than the $1.37 billion in sales that
analysts polled by Thomson Reuters expected on this basis.

Yahoo reported net income of $54 million, or 4 cents per share, a
decline of 51% from a year ago. Excluding certain one-time charges,
Yahoo recorded profits of $123 million, or 9 cents per share, which
was in line with what analysts had forecast on this basis.

Yahoo’s stock ended the regular trading day down 79 cents at $12.07
but rose 7% in after hours trading.

The report provided “no more negative surprise beyond what we had
already expected,” said Sandeep Aggarwal, Senior Internet Analyst at
Collins Stewart.

And given the weak economy, Yahoo’s report “could have been a lot
worse,” noted Jeffrey Lindsay, senior analyst with Sanford C.
Bernstein & Co.

Lindsay said that Yahoo’s decision to reduce costs, mostly through
massive job cuts, has the potential to buoy the company through the
hard times. “If they really do take the staff numbers down for real,
that will have a very beneficial effect,” said Lindsay.

Yahoo’s stock has been battered in recent months due to concerns that
companies would cut their online advertising spending as a result of
the economic slowdown. Executives admitted that Yahoo’s performance
has been taking a hit from the sluggish economy.

“An increasingly challenging economic climate and softening
advertising demand contributed to revenues this quarter coming in at
the low end of our outlook range,” said Yahoo Finance Chief Blake
Jorgensen in a statement.

“While we are disappointed with our results, we’re pleased that we
continue to benefit from the aggressive cost management efforts we
have pursued during the year,” he added.

Looking forward. In light of the distressed global economic climate,
Yahoo lowered its sales guidance for the remainder of the year. At the
end of the second quarter, the company was expecting sales to be in
the range of $7.35 billion and $7.85 billion. However, the company has
now trimmed that revenue guidance to between $7.18 billion and $7.38
billion.

Even thought Yahoo cut its sales forecasts, the company didn’t
decrease operating cash flow guidance. According to Aggarwal, that
means that Yahoo’s profit margins will be higher than originally thought.

Investors are worried that large companies will spend less on
so-called Internet display ads, such as banners and video. Automakers
and banks, two of the nation’s hardest hit sectors, have typically
been big purchasers of display ads.

Yahoo turned down several takeover offers from Microsoft (MSFT,
Fortune 500) this year, a decision that has frustrated many Yahoo
shareholders. Since then, Yahoo has pursued an ad-sharing deal with
top rival Google (GOOG, Fortune 500).

The partnership has been put on hold, however, as the Justice
Department investigates whether the deal would create an online
advertising monopoly and violate antitrust laws.

In the conference call, Yang shot down speculation that Google might
pull out of the partnership and said that the company was still
working with the Department of Justice to negotiate the deal with
Google. “We look forward to bringing the benefits to the marketplace
as soon as possible,” said Yang.

Also on the conference call, Yahoo president Susan Decker talked about
Yahoo’s efforts to move away from a “one size fits all” portal to a
more customized experience. Yahoo has been criticized by some for
being too broad and lacking a definite focus.

Meanwhile, Google announced last week that its profits jumped a
better-than-expected 26% in the third quarter. Google has continued to
report strong growth despite the economic downturn thanks to its
dominance in search advertising.

By: Teghkaransingh