While Yahoo Struggles, Microsoft, Google Lurk In Background

The Sunnyvale, Calif.-based company said it plans to cut 1,500 jobs, about 10 percent of its workforce, and shave about $400 million from its $3.9 billion in annualized costs before the end of the year after reporting a 1 percent revenue increase and a 64-percent decrease in net income for the third quarter ended Sept. 30.

"An increasingly challenging economic climate and softening advertising demand contributed to revenues this quarter coming in at the low end of our outlook range. While we are disappointed with our results, we're pleased that we continue to benefit from the aggressive cost management efforts we have pursued during the year," said Blake Jorgensen, CFO. Jerry Yang, co-founder and CEO, also noted that economic conditions and online advertising softened in the third quarter but he said the company has been disciplined with cost management all year.

"And [we] have now set in motion initiatives to reduce costs and enhance productivity," Yang said in a statement. "The steps we are taking this quarter should deliver both near-term benefits to operating cash flow, and substantially enhance the nimbleness and flexibility with which we compete over the long term."

Often, when companies talk more about cutting costs than future growth, it's a sign that they're preparing for a sale, but with Yahoo the signals are not as clear. Earlier this year, Yahoo and Microsoft companies famously spat with each other when Yahoo rejected Microsoft's bid to buy Yahoo for $33 per share, or $47.5 billion. Yahoo later signed a search advertising pact with Google that is under anti-trust review.

But just last week, Microsoft CEO Steve Ballmer said a deal with Yahoo makes economic sense and may still be possible, but he noted the two sides are not in any discussions right now. Microsoft later issued a statement that it had no interest in buying Yahoo. Certainly, it wouldn't be likely to pony up the same amount of money this time around.

Yahoo shares were trading at $12.64 Wednesday afternoon, up 57 cents or almost 5 percent per share. The stock has traded as high as $34.08 over the last 52 weeks.

Wall Street analysts are more concerned about the company's outlook on its own, especially after Yahoo also lowered its fourth-quarter revenue estimate to $1.77 billion to $1.97 billion, which ranges from a 3-percent decline to 8 percent growth, year-over-year.