The fear clock has struck its final hour, and the largest number of layoffs are about to commence at search engine giant, Yahoo (YHOO). Currently, Yahoo has 14,000 global employees and those close to the situation say the cuts will be very significant.
Over the next two weeks, Yahoo will experience large changes to the structure of its current workforce. Beginning April 2nd, layoffs of hundreds, if not thousands, of workers will commence, followed by restructuring plans that management has deemed necessary in an effort to slim down the company.
The primary focal points of these layoffs will be employees in the product placement, marketing, and research and developments units. The vision of Yahoo's management team is simple; they want a leaner, meaner, advertising and media giant who can succeed and prosper within the areas they are accustomed to. Some sources close to matter say that Ross Levinsohn could be heading up a global media unit and Shasi Seth could be leading a search and communications unit (I).
Are there more layoffs to come later in the year? I think so. Investors tend to favor continued cuts as part of an overall restructuring plan versus one singular sweep. This will be a two or three phase initiative by Yahoo, which should also indicate that further troubles aren't on the horizon, and any near-term troubles have been resolved by this restructuring plan. The plan does indicate a leaner and meaner Yahoo, however specifics have yet to become public.
In my opinion, investors should take this very well. It shows a deep-rooted concern by management that the company needs a turnaround. It also demonstrates that Yahoo will be given the direction it has so longed for over the last three years. Currently, YHOO is pretty cheap considering it trades at $15.25/share and carries a P/E ratio of 18.67. A small to mid-sized long position in YHOO may be a great portfolio enhancer over the next quarter or two.
If investors want to really play this news, the options angle might be best. Let's say Yahoo cuts 10%-20% of its workforce, which sounds in line with estimates, the company will then be able to put to use that capital into areas it wishes concentrate to on, such as Research and Development. In the near term, May $17 calls, which currently trade at $0.19 per contract may be a good start. There's potential upside in the stock and trading could very well enter the $17.25 - $17.75/share range.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
