Yahoo Inc. plans to lay off 1,000 employees from its workforce of 14,300 following a 23 per cent decline in its fourth-quarter profits, the company said in a conference call Tuesday.

The Sunnyvale, Calif.-based company didn't specify which areas of its operations will be trimmed in the seven per cent cut. Management indicated further details will be released by mid-February.

Yahoo struggled in 2007, with fourth-quarter profit dropping 23 per cent.
(Paul Sakuma/Associated Press)

"This is a necessary step in our transformation," Yahoo chief executive officer Jerry Yang said during the conference call, held to review the losses.

Yahoo, already in a financial funk, earned $205.7 million US or 15 cents per share during 2007's final three months, a 23-per-cent drop from profit of $268.7 million or 19 cents a year earlier.

Analysts had prepared investors for even worse, projecting, on average, earnings of 11 cents per share for the period.

Revenue for the period totalled $1.83 billion, an improvement of eight per cent over $1.7 billion in 2006.

After subtracting commissions paid to its advertising partner, Yahoo's revenue fell to $1.4 billion, in line with analyst estimates.

Yang, who returned as CEO seven months ago, signalled the company has challenges ahead.

"While we will continue to face headwinds this year. We believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009," he said in a statement.

Excluding ad commissions, Yahoo estimated its revenue this year will range from $5.35 billion to $5.95 billion. The average analyst estimate stood at $5.92 billion, according to Thomson Financial.

Shares plummet

Yahoo shares plummeted about $2.21, or more than 10 per cent, in extended trading Tuesday after finishing the regular session at $20.81, up three cents.

Last year marked the first time Yahoo's earnings have dropped from the previous year since the company lost $93 million in 2001 during the aftermath of the dot-com bust.

Unlike in 2001, Yahoo hasn't stopped making money. But the company's 2007 profit fell 12 per cent to $660 million, even though advertisers spent more than ever on the internet, where Yahoo still draws one of the web's largest audiences.

The bulk of additional ad revenue has been pouring into internet search leader Google Inc., a company that was smaller than Yahoo just three years ago.

Yahoo has been struggling to attract teenagers and young adults who are gravitating to more trendy online hangouts, such as Facebook.com and News Corp.'s MySpace.com.

Yahoo jettisoned 650 workers in the wake of the dot-com bust seven years ago.