The job cuts, equaling about 20 percent of WebMD's workforce, will be completed by the end of next year. WebMD will take a pretax charge of $35 million to $45 million in the third quarter, the company said in a statement Thursday.
WebMD shares rose $2.75, or 24 percent, to $14 in Nasdaq stock market trading, with 7.2 million shares traded, more than twice the three-month daily average. They fell 70 percent this year as the Atlanta-based company lost more than $900 million in the first half. Investors grew concerned about WebMD's ability to integrate acquisitions after it bought or formed joint ventures with more than 100 businesses in almost two years.
"The company needed to do something drastic here" to show investors that it's serious about cutting costs, said Sean Wieland, a Prudential Volpe Technology Group analyst with a "strong buy" rating on the stock.
The company had said it wants to save more than $200 million a year, and Thursday's announced actions will accomplish that, Mr. Wieland said. Co-chief executive Jeff Arnold said last month that he expected WebMD to have a profit before charges by next year.
WebMD's workforce grew to 5,500 employees from 3,300 in early September when the company completed acquisitions of CareInsite Inc. and its parent, Medical Manager Corp. Since November, WebMD has agreed to spend more than $5.6 billion to buy rivals and expand online services.
"As we integrate and combine operations we automatically have a certain amount of redundancy," said co-chief executive Marty Wygod. Last month, the company laid off 100 employees to reduce some of the overlap from acquisitions.
Mr. Wygod, who was Medical Manager's chairman, became co-chief executive this month when WebMD completed its purchase of that company and changed its name from Healtheon/WebMD.
The company has $900 million in cash on its balance sheet, said Steven Halper, an analyst at Donaldson, Lufkin & Jenrette Inc. who has a "buy" rating on the stock.
WebMD expects total annual savings of about $250 million by the end of 2001 from job cuts and other measures. "If all they do is cut $250 million in expenses and add $400 million in cash, they should have more than $1 billion in cash next year," said Raymond James Financial Inc. analyst James Kumpel.
The company had a loss of $17.1 million, or 24 cents a share, in the third quarter last year. Analysts have been reluctant to make forecasts for this quarter because of WebMD's acquisitions, said Daren Marhula, an analyst at U.S. Bancorp Piper Jaffray.
"Wall Street's really waiting" for more details on integrating the companies before putting out estimates, said Mr. Marhula, who has a "buy" rating on the stock and hasn't published a recent estimate. WebMD said it will give more integration details and plans at an analysts' meeting Oct. 12.
In April, Internet pioneer and WebMD co-founder Jim Clark said he'd buy as much as $200 million in stock to bolster the share price after it fell by half in the month before. The company said Mr. Clark's purchases were delayed by the Medical Manager acquisition.
Venture capitalist John Doerr, a WebMD director, also said that he'd buy another $20 million in shares. Mr. Doerr's firm, Kleiner Perkins Caufield & Byers, owned about 7.72 million shares as of May, according to a proxy filed with the U.S. Securities and Exchange Commission.
WebMD also said Thursday that it would divest its plastics and filtration technologies subsidiaries and could eliminate some other relationships. It named Anthony Vuolo chief financial officer.