Profits at Yahoo have fallen 23% and the internet search engine says it plans to lay off 1,000 workers.
Yahoo's main competitor is Google
Chief executive Jerry Yang predicted a tough year ahead and said the cuts were necessary to transform the firm and make it more competitive.
Reporting its results for the three months to the end of December, Yahoo said it profits stood at $205.7m compared with $268.7m a year earlier.
The company, which employs 14,300, did not say where the jobs would be lost.
"While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009," Mr Yang said in a statement.
Yahoo makes most of its money from advertisers.