Yahoo Inc. (NASDAQ:YHOO) is reporting having cut 1% of its work force to reduce their cost structure and concentrate on growth areas. This may seem like a positive to the market, but is it really?
This job cut adds to another recent move by YHOO who cut 400 staff back in October 2014. To us the job cuts are more a signal of a company that can only boost earnings by cutting costs and is finding it hard to do this by actually growing top line numbers.
It’s no secret that Yahoo (NASDAQ:YHOO) is struggling against their major competitor in online search Google Inc (NASDAQ:GOOG) and finding it difficult to attain market share against them. If Yahoo was really able to bring growth into these growth areas we would rather be seeing them holding onto staff and in fact growing staff. This is what Yahoo needs to do to stand any chance against competitors, develop into new innovative areas. Cutting back will only see them unable to product new innovation.
The market Yahoo (NASDAQ:YHOO) operates in is a very difficult one, a leaner cost structure will not necessarily translate into the true growth that the company requires in the fast past ever changing world of internet and technology.
Yahoo last finished trading at $43.65 after moving up 0.28% in the day’s trading. The stock has a very high forward Price to Earnings ratio of 46.68 indicating that analysts expect a large growth in earnings and cost cutting is one way to get there, but only a small part of the way. The true way to achieve their required earnings growth will be through real and sustainable top line growth.