The layoff rumors are true. Yahoo! (NASDAQ:YHOO) announced another wave of layoffs during last night's earnings report. It will be trimming another 5% of its payroll over the next few weeks.

The headcount isn't the only thing getting smaller at Yahoo!. The company's first quarter was another humbling round of shrinking financials. Revenue excluding traffic acquisition costs fell by nearly 15% to $1.156 billion. The company's profit fell to $0.08 a share, or $0.15 a share on a non-GAAP basis.

To get a cleaner snapshot of where Yahoo! is heading, let's take a look at areas where it's not going. The following areas dragged down the company's top-line performance.

  • Fee-based revenue fell by 20%.
  • Affiliate sites contributed marketing revenue that was 16% lower than last year.
  • Its international operations suffered a 24% haircut on the top line.

Fee-based revenue is a small slice of the overall revenue mix pie, but it has always been seen as Yahoo!'s diversified strength, relative to the ad-centric Google (NASDAQ:GOOG). Well, HotJobs, personals, and premium email offerings, aren't exactly making Google consider trading in its paid search basket.

Shouldn't HotJobs be doing well? William Blair upgraded shares of rival Monster Worldwide (NYSE:MWW) last week, under the assumption that the closure of local newspapers will drive more want ads to sites like Monster.com, HotJobs, and Dice (NYSE:DHX).

Affiliate revenue, which is the revenue that Yahoo! scores by syndicating its ads on third-party sites, continues to be a bleeder. Is Yahoo! simply making bad bets or are all publishers just flocking to market leader Google?

The international dip is understandable, given the strengthening dollar versus European currencies, but it's got to hurt to see Google grow overseas and international search stars like Baidu (NASDAQ:BIDU) take huge strides as Yahoo! recoils.

This doesn't mean that Yahoo! would have been a speedster without its laggards. Stateside revenue and marketing revenue for its owned and operated sites fell by 9% and 10% respectively.

CEO Carol Bartz has responded by slashing paychecks and closing smaller sites, but that's more a game of capital preservation -- which may not be necessary given the company's cash balance of nearly $3.7 billion -- than growth.

There is also Microsoft (NASDAQ:MSFT), which continues to hound Yahoo! for an ad partnership. Bartz is sticking to her guns in keeping Yahoo! independent there, and rightfully so. Yahoo! without search is like Paris Hilton without rich parents: boring and irrelevant.

If Microsoft wants to buy Yahoo! whole, Bartz should definitely listen, but it doesn't make sense to dilute its already diminishing stature in online advertising by teaming up with a bigger laggards like Microsoft.

Nobody wants to keep shrinking forever.

The world according to Yahoo!:

Baidu and Google are Motley Fool Rule Breakers selections. Microsoft is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz thinks that Microhoo will inevitably happen before the end credits roll. He does not own shares in any of the stocks in this story. He 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.