Yahoo Layoffs: Drumbeat Grows Louder (YHOO)

We've argued that Yahoo needs to cut 1,200 of its employees. Bernstein analyst Jeffrey Lindsay argues that the cuts need to go a lot deeper: 20% of the work force, or at least 2,000 employees. Unless Yahoo posts an extraordinary Q4, we suspect that these unpopular murmurings will become a full-fledged howl by early next year.

Major, disciplined layoffs would accomplish four things:

• Improve Yahoo's low profit margins.
• Raise the average strength of Yahoo's management team.
  
• Serve as a swift kick in the posterior to remaining employees.
  
• Demonstrate that CEO Jerry Yang can make the tough, unpopular decisions necessary to get this company humming again.

This would be a far tougher move for Jerry than it would be for an independent CEO who hadn't nurtured the company for the past 13 years. Founders Jerry and David Filo are still revered within the Yahoo ranks (with reason), and a wholesale firing would not immediately improve Jerry's standing with the troops.

Importantly, however, it would strengthen the company, and over the long haul, this would help Jerry. It would also answer the question that many analysts and observers still have about him as CEO: Whether he has the emotional and analytical detachment (and, um, balls) required to do what is best for the company.  Financial analysis of layoff-impact here.

See Also: Yahoo Turnaround Step 2: Layoffs