Don't let the jovial ways of Yahoo!'s (NASDAQ:YHOO) Start Wearing Purple viral marketing campaign or its aggressive multimedia search ads fool you. The online giant is in real trouble. According to a Valleywag tipster, the company is gearing up to lay off 3,500 employees come December.
It's obviously a rumor, though it certainly would surprise no one to see the company aggressively hacking at its rolls.
Like the giddy crowd at a Jonas Brothers concert, Yahoo!'s stock price is stuck in the tweens. Shareholders are begging for change, though it remains to be seen if 3,500 rolling heads will be enough to satisfy the market's bloodthirsty appetite.
See, Yahoo! has been here before. The company laid off hundreds back in February. It saw its payroll go from 14,300 to 13,800 Yahooligans by the end of the first quarter. A quarter later, its workforce was back at 14,300.
Sure, it's different this time. We're talking about thousands of employees -- not hundreds -- potentially being let go. However, unless CEO Jerry Yang and Chairman Roy Bostock join their fallen Yahooligans on the swords, the market is still going to cry out for change.
eBay (NASDAQ:EBAY) dismissed 10% of its workforce earlier this month, and it's not taking any of the sting out of last night's disappointing guidance. Time Warner's (NYSE:TWX) AOL has been earning frequent-head-lopping miles with its guillotine over the years, but the online arm isn't any closer to salvation.
Given Yahoo!'s lousy operating margins relative to market leader Google (NASDAQ:GOOG), trimming its workforce is one way to make up the gap. As long as the company's revenue-generating power isn't dealt a blow in the upheaval, it's the fiscally prudent thing to do. In fact, if the top line holds up, the real question is why Yahoo! didn't get aggressive on lowering its headcount sooner.
Maybe Yahoo! still had stars in its eyes after its drawn-out dance with Microsoft (NASDAQ:MSFT) this year. Naively waiting for Microsoft to offer an even better buyout deal, it probably held back on the necessary layoffs, hoping to leave it up to Mr. Softy to make the hard staffing decisions.
Those days are over. The company's days as a growth stock darling are way over. I guess Yahoo! realizes that if it wants to be valued as the value stock it is, it's time to make sure that it provides an attractive earnings-based valuation.
Other articles to read before deciding what Yahoo! is really worth:
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Longtime Fool contributor Rick Munarriz spends plenty of time on Yahoo!'s sites, but he does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
