San Francisco: Yahoo Inc's plans to turn around its struggling core business are set to dominate its earnings report on Tuesday, with investors keen to see if CEO Marissa Mayer will push ahead with a proposed spin-off or entertain calls for a complete sale.
The spin-off of its main business which includes its search engine and digital advertising units was flagged by Mayer in December after Yahoo abandoned efforts to sell its stake in Alibaba Group Holding Ltd, but the company has provided few details.
On Monday the Wall Street Journal reported Yahoo planned layoffs of about 15 percent of its 11,000-strong workforce and would close unspecified units.
A Yahoo spokeswoman declined to comment on the report, citing the quiet period ahead of earnings.
Investors are also expected to zero in on any comments from Mayer on her plans to increase the company's advertising sales and improve its efforts on mobile platforms, where more users are spending their online time.
Some activist investors are pushing Yahoo to ditch the spin-off and instead sell the core business. Verizon Communications Inc has expressed interest in the core, and analysts say other potential buyers include media and private equity firms.
A note published by SunTrust Robinson Humphrey last week valued the core business at between $6 billion and $8 billion.
A Reuters story earlier this year reported that investors are prepared to take a tax hit on a quick sale of the core business instead of waiting for a spin-off that could take more than a year.
For the fourth quarter, analysts expect Yahoo to report revenue of $1.18 billion and earnings per share of 12.5 cents, according to Thomson Reuters I/B/E/S. Last quarter's revenues and EPS both missed analysts' estimates.
Yahoo has struggled to expand its Internet business, which includes selling search and display ads on its news and sports sites and email service, in the face of competition from Alphabet Inc's Google unit and Facebook Inc.
Yahoo's revenue has fallen slightly since Mayer took the helm in mid-2012, and its share of U.S. web searches is essentially flat with three years ago, gaining no ground on market leader Google.
Ranking system challenged in court
One of Marissa Mayer's signature policies as chief executive of Yahoo has been the quarterly performance review, in which every employee at the company is ranked on a scale of 1 to 5. The ratings have been used to fire hundreds of employees since Mayer joined the company in mid-2012.
Now, as Mayer prepares to announce a streamlining plan Tuesday that is likely to involve even more job cuts, one former manager who lost his job is challenging the entire system as discriminatory and a violation of federal and California laws governing mass layoffs.
In a lawsuit filed in U.S. District Court in San Jose, California, on Monday, Gregory Anderson, an editor who oversaw Yahoo's autos, homes, shopping, small business and travel sites in Sunnyvale, California, until he was fired in November 2014, alleges that the company's senior managers routinely manipulated the rating system to fire hundreds of people without just cause to achieve the company's financial goals.
Anderson said the cuts, including what his boss said was the firing of about 600 other low-performing Yahoo employees at the time of his termination, amounted to illegal mass layoffs.
Under California law, the layoff of more than 50 employees within 30 days at a single location like Yahoo's Sunnyvale headquarters requires an employer to give workers 60 days of advance notice. A similar federal law, known as the Worker Adjustment and Retraining Notification Act, requires advance notice for a layoff of 500 or more employees.
No notice
Yahoo has never provided such notices. But it did cut 1,100 employees over a period of months in late 2014 and early 2015, ostensibly for performance reasons.
Violations of either law can lead to penalties of $500 per employee plus back pay for each day of advance notice the company failed to provide.
The lawsuit comes as Yahoo morale hits new lows, with more than one-third of the company's workforce having left voluntarily or involuntarily over the past year.
Mayer, who has presided over a continued decline in Yahoo's financial performance, faces pressure from activist investors to sell the company's Internet businesses or otherwise radically restructure the business. She has promised to unveil a new strategy on Tuesday, when the company reports its financial results for the fourth quarter of 2015, although people familiar with her thinking say that the changes she will announce will be modest.
Anderson's suit provides a peek inside Yahoo's controversial quarterly performance review system, which Mayer adopted on the recommendation of McKinsey & Co., a management consulting company. Similar systems were once widely used in corporate America, including at companies like General Electric, Cisco Systems, Google and Accenture.
Such forced rankings have largely been abandoned as a tool to guide routine firings, however, because of their corrosive effect on employee morale.
At Yahoo, the program, known internally as QPR, has been a sore spot among many employees since it began.
The court filing said that managers were forced to give poor rankings to a certain percentage of their team, regardless of actual performance. Ratings given by front-line managers were arbitrarily changed by higher-level executives who often had no direct knowledge of the employee's work. And employees were never told their exact rating and had no effective avenue of appeal.
"The Q.P.R. Process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed," the lawsuit says. "This manipulation of the Q.P.R. Process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping."
Anderson said that in his case, he had received high ratings and a promotion before taking a leave of absence in the summer of 2014 to study at the University of Michigan on a Knight-Wallace Fellowship.
Although the fellowship leave was approved by two top Yahoo executives, Kathy Savitt and Jackie Reses, who have since left the company, Anderson said that his boss's boss, Megan Liberman, called him on Nov. 10 to inform him that he was in the bottom 5 percent of the company's workforce, all of whom were being fired.
In the suit, Anderson said he was fired for several reasons unrelated to performance. He said he had complained to management about the impact of the QPR process on the people he supervised and had reported an attempted bribe by one employee who wanted him to reduce another employee's rating.
He also alleged gender discrimination, claiming that the media group, which was overseen by Savitt and Liberman, systematically favored women in hiring, promotions and layoffs.
Anderson said he was "stranded" in Michigan with his family because of the firing.
(Reuters, Bloomberg, NYT)
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