There is a rumor that Yahoo! (NASDAQ: YHOO) will layoff 20% of its workforce or 20% of the workforce in one of its divisions. Neither may be true. Yahoo! has become the target of more speculation than perhaps any company in America after Apple (NASDAQ: AAPL)
Yahoo! has had layoffs in the past. So have its competitors AOL (NYSE: AOL) and Microsoft’s (NASDAQ: MSFT) MSN portal. But, it would be a mistake to believe that the “old” internet are the only ones downsizing. Former social network powerhouse MySpace has cut staff and there are rumors that its parent News Corp (NYSE: NWS) has lost patience with the property.
Whichever of these rumors is true or not true, online media has come of age, at least financially. Investors were once tempted by the promise of future success. They now want large profits. Growth is still important, but profits are even more important. That leaves online properties in a bind, especially those which have been in business for a number of years. The market has lost its appetite for expansion and the losses that often go with it.
This means that more and more website will be shuttered or their expenses will be brutally cut. The argument of investors with interests in buying flagging online properties is that they can reach profitability through “downsizing”, which works until it doesn’t. Older online media companies are not unlike other businesses. Cost cuts are often counterproductive even if their temporary results are attractive
It is interesting to watch one of the oldest big companies in America sell its IPO. GM has, as part of its appeal its management and bankers claim, future profits. But, the real sale for the IPO is growth in sales and market share in the US, Europe, and China–especially China. GM will have few buyers for its shares if the promise is for future profits without any future growth. GM will actually increase expenses to fuel growth though new factories and employees
Yahoo! and MySpace, TheStreet.com (NASDAQ: TSCM), video site Hulu, job site Monster (NYSE: MWW), and a legion of other online firms have already cut costs and now have reached the bone. The market is not happy with cuts any longer. It wants to see profits and the path to those is often only through growth.
Douglas A. McIntyre