No casualties at Yahoo!Xtra

After a 78% profit fall, Yahoo is to lay off a further 5% of its workforce. Investors hope the poor result will help push Yahoo into an advertising alliance or merger with Microsoft.

In the wake of its poor quarterly result announced this morning, Yahoo has announced plans to cull 675 workers, or 5% of a workforce already trimmed by 2500 last year.

Chief executive Carol Bartz (pictured), who took over from Yahoo’s boyish founder Jerry Yang two weeks into the quarter, blamed the recession, citing a 13% fall in online display ads over the period.

Search ad revenue fell 3% after several quarters of double-digit growth.

The silver lining for investors: Yahoo’s situation may now sufficiently challenging to motivate it to ink an advertising alliance with Microsoft. The two companies are number two and three in internet search and advertising, but far behind Google. Many commentators think only a big bang manoeuvre, such as a Microsoft merger – pursued then abandoned by Mr Yang amid clashing egos and overambitious financial demands – is the only way for the two to make serious headway.

The salty Ms Bartz confirmed that Yahoo had reopened talks with its rival, centering on an alliance that would see Microsoft serve ads across both companies’ sites. However, no partnership agreement is imminent.

The company's shares (NAS: YHOO) rose 5% in regular trading then another 5.27% following the after-hours announcement to $US14.38, still well-off their 52-week high of $US29.73. At the time of Microsoft and Yahoo's merger talks, Microsoft chief executive Steve Ballmer was said to have been offering a now generous-looking $US32 a share; while Mr Yang was holding out for $US38. An unimpressed investors pressured the board to show him the door.

Yahoo is represented in New Zealand by Yahoo!Xtra, 51% owned by Australia’s Seven Media (owner of Yahoo7.com.au), and 49% by Telecom.

Yahoo!Xtra chief executive Kevin Bowler said there would be no lay-offs locally. Mr Bowler said Yahoo!Xtra had enjoyed a strong quarter, but only reports full-year results.

Nielsen//NetRatings traffic ratings for January to March this year (see chart below) show Yahoo!Xtra pulling more unique browsers than its immeidate rivals.

Yahoo!Xtra was created after a political spat saw Telecom’s former joint venture, XtraMSN, cleaved in two. MSN.co.nz now operates as a standalone Microsoft portal. A Microsoft-Yahoo advertising alliance would bring Yahoo and MSN back together, or at least make their independent lives very complicated.