Yahoo!'s Going the Wrong Way

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Pink slips are bleeding purple again.

The New York Times is reporting that Yahoo! (Nasdaq: YHOO  ) is slashing hundreds of jobs this month, trimming its workforce by 5%.

Layoffs aren't new at the online giant. There have been several rounds in recent years.

Some cuts make sense. When Yahoo! decided to outsource its search business to Microsoft (Nasdaq: MSFT  ) , it wasn't going to need as many engineers and paid search marketers on board. Cutting back on some of its non-core services -- such as selling HotJobs to Monster Worldwide (NYSE: MWW  ) and email specialist Zimbra to VMware (NYSE: VMW  ) earlier this year -- will naturally call for a step back.

However, why is Yahoo! still going through with these morale-crushing dismissals? I think we've reached the limits of what Yahoo! layoffs can teach us.

After all, Yahoo! shares have been meandering in the teens about as long as the Jonas Brothers. Layoffs haven't been the catalyst to the shareholder returns that investors were hoping for when Carol Bartz took the helm.

Margins may be expanding -- even after backing out one-time gains on asset sales -- but revenue growth has clocked in flattish this year. Isn't top-line growth what investors are really waiting to see before jumping back into the former dot-com darling?

Yahoo! has refused to woo income investors through dividends. It has no intention of unloading its valuable Asian investments -- a good thing, given how Yahoo! Japan and China's Alibaba are growing relative to Yahoo!'s homegrown business. Despite a cash-rich balance sheet, it has failed to nab any needle-moving acquisitions lately.

What Yahoo! needs now -- more than inching margins higher or toying around with a possible combination with AOL (NYSE: AOL  ) -- is to jumpstart organic growth.

Layoffs aren't always a bad thing, but they can be devastating when you're a company that's hungry for a self-crafted hit. I'm not suggesting that any of the hundreds being let go will turn around and create the next great start-up, though it would be poetic if it happened. Even those that do make the cut begin wondering why they're still at a company that's letting people go on this side of the recession. It's a motivational weaker. It's a kill ploy. It's a wet purple blanket. It's a painful exercise that teaches us nothing that we already didn't know.

What can Yahoo! do to win back investors? Share your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value pick. VMware is a Motley Fool Rule Breakers recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz wonders if it's time for Yahoo! to shed the exclamation point. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2010, at 9:33 AM, pete163 wrote:

    That's why I got out of YaHoo, they were always doing something wrong! And this makes them look good dump a load of people off the payroll right at Christmas, wow how nicer can they be. A truck load of JACK-LEG's

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