The job cuts will reduce the number of its employees to about 9,000 by the end of 2016.
The announcement came as Yahoo reported a $4.3bn (£3bn) loss for the year.
In a statement, chief executive Marissa Mayer said: "This is a strong plan calling for bold shifts in products and in resources."
She added that it would "dramatically brighten our future and improve our competitiveness, and attractiveness to users, advertisers, and partners."