The announcement, coming with the release of a big quarterly loss, offered the first sign that Yahoo may be open to a sale or merger after years of struggling to regain its former glory.
The California company reported a loss of $4.43 billion in the final three months of last year, due mostly to lowering the value of its US, Canada, Europe, Latin America and Tumblr units. Revenue was up marginally from a year ago at $1.27 billion.
Yahoo said in a statement it was launching "an aggressive strategic plan to simplify the company, narrowing its focus on areas of strength to better fuel growth."
At the same time, it said it was looking at "additional strategic alternatives," suggesting it could seek a deal to sell or merge the company.
Yahoo chief executive Marissa Mayer said she is launching "a strong plan calling for bold shifts in products and in resources" to help revive the company's fortunes.
She maintained that the plan would "dramatically brighten our future."
The plan is intended to drive growth in Yahoo's mobile, video, social and "native" ad offerings, a group of products which Mayer refers to as "Mavens."
Tuning offerings for mobile Internet users will be at the forefront as Yahoo focuses on its search, email, and online magazines, according to Mayer.
Online discovery, communication, and differentiated digital content are "what make Yahoo Yahoo," Mayer said.
Streamlining the company and putting it on a trajectory for improved earnings would also make it a more attractive acquisition.
Job cuts this quarter
Yahoo said it will reduce operating expenses by more than $400 million by the end of the year.
The company will cut its workforce by about 15 percent, or approximately 1,500 people, and closing offices in Dubai, Mexico City, Buenos Aires, Madrid and Milan.
Yahoo expects that by the end of this year it will have approximately 9,000 employees and fewer than 1,000 contractors.
"Yahoo does not take this decision lightly and will make every effort to handle the process with thoughtfulness, transparency, and compassion," it said in a release.
Yahoo shares were down slightly more than one percent to $28.62 in trades that followed the close of market on Tuesday.
Mayer on the defense
Mayer took time during a webcast earnings presentation to attack what she branded "blatant falsehoods" in some media reports.
She passionately rejected accounts that Yahoo had squandered $7 million dollars on a holiday party and over the past few years has spent $450 million on food for workers..
"I have found these untruths to be upsetting," Mayer said.
"Both numbers are exaggerated by more than a factor of three."
She said that globally, holiday parties hosted by the Silicon Valley-based company cost about $150 per attendee.
"Our food program is extremely well-run and all employee perks are standard for our industry in light of our companies area and generally run less expensively here than elsewhere," Mayer insisted.
She also defended giving workers smartphones, saying the handsets remain Yahoo property and that they were warranted tools given that a company priority is tuning into mobile lifestyles.
"There are many more examples of untruths," Mayer said. "Please know we are very thoughtful about how we spend company resources."
Maynard Webb, Yahoo chairman, said that the board is "committed to the turnaround efforts of the management team" but must also look at other options.
"The board also believes that exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders," Webb said.
The restructuring plan will allow Yahoo to focus on mail, search and the Tumblr blogging platform for consumers, as well as "deep vertical utilities" identified as news, sports, finance and lifestyle. Yahoo will also focus on two advertising units known as Gemini and BrightRoll.
Yahoo is also expect to sell off non-strategic assets including patents and real estate, generating some $1 billion.
Industry tracker eMarketer forecast that Yahoo's share of the global mobile internet ad market will slip slightly this year to 1.5 percent.
"Although it is growing, Yahoo's so called Mavens businesses have not gathered enough momentum to turn around Yahoo's advertising business, and we expect to see the company's market share decline in the near future," said eMarketer analyst Martin Utreras.
The company plans to proceed with its plan to separate the core business from its stake in Chinese online giant Alibaba.
Last year, Yahoo revised the plan for tax reasons, deciding to spin off the core operations.