The company will make the second wave of layoffs this year totalling 10% of its workforce, estimated at 15,000, in a bid to cut costs and boost productivity.
In January it said it was making 1,000 people redundant. Revenue for the quarter was up by 1.1% to $1.79bn, but profits fell from $151m last year to $54m.
Jerry Yang, co-founder and chief executive of Yahoo, said: "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."
The market reacted well to Yang's comments, with Yahoo! share price rising by 5.2% in after-hours trading to $12.70.
The last trade on Nasdaq, before the announcement, saw the shares close at $12.07. This is $10 below the price that Microsoft offered shareholders earlier this year when it attempted to acquire Yahoo!
Analysts have said they fear Yahoo! is more susceptible to the downturn because of its reliance on online display advertising -- an area likely to be hard hit when advertisers start cutting budgets.
Yang, attempted to reassure investors, saying: "We enter this slowing market with competitive advantages as the destination of choice for consumers and as a leader in providing online advertisers with the broadest set of advertising management tools and products in the industry. We plan to continue building on those strengths."
Yahoo! had signed a deal with Google to sell Google advertising on Yahoo! search results in return for a share of the profits. However, the deal has been met with criticism because of competition fears, and faces investigation in the US and the EU.