Yahoo revenue drops, but profits rise 8 percent in Q2

Less ad revenue led to the decline, but overall the company fared better than analysts had predicted

Yahoo on Tuesday reported second-quarter revenue of US$1.57 billion, down 13 percent from a year earlier as companies continued to spend less on advertising.

Its net profit for the quarter, ended June 30, was $141 million, or $0.10 per share, an increase from $131 million, or $0.09 per share, in the same quarter a year earlier, the company said.

Excluding one-time charges, which included a $65 million restructuring charge for severance payments and other items, the net profit was $229 million, or $0.16 per share, much better than the $0.08 per share that analysts had been expecting, according to Thomson Reuters.

"Considering the economy, I'm pleased with our results," CEO Carol Bartz said in a conference call.

Revenue from marketing services, which includes Yahoo's online advertising business, declined 13 percent from a year earlier, while "fees" revenue, which includes money from paid services such as music downloads, declined 8 percent, the company said.

The revenue was pulled down by changes in exchange rates and the sale of Yahoo's Kelkoo business last year. Excluding those factors, revenue would have declined by 6 percent instead of 13 percent, the company said.

Yahoo is under pressure to revitalize its Web sites and generate financial results that compare better with those of Google, the market leader in search and search advertising.

Google reported its second-quarter results last week. Its revenue increased by 3 percent, to $5.52 billion, while net income before one-time charges was $1.71 billion.

Yahoo is rolling out a new home page in the U.S. Tuesday as part of its recovery effort, hoping to pull more people into its orbit of Web sites. The new page adds a column of "favorites" on the left of the screen that provides access to services from other companies, such as Facebook and e-Bay.

The new page will appear in the U.K., France and India in the coming days, across the rest of Europe and Latin America next month, and in Asia early next year, Bartz said. Users can "opt in" to the new design for now, but eventually it will be the default Yahoo home page.

Yahoo doesn't get money for linking to the third-party services, Bartz said. Instead, the goal is to make Yahoo's home page a destination from which people can "check in" on other services around the Web but still come back to Yahoo.

"It's about making sure we improve the whole relevance of Yahoo to any online user, and going back to being the center of their online life," Bartz said.

She pledged to get rid of "irritating advertisements" that "cheapen the Yahoo brand," particularly display ads that appear in Yahoo Mail and elsewhere.

"It's no secret many of our users are put off [by] irritating, high-frequency ads that detract from their time with us," she said. "Dealing with these ads will be a high priority for us and just as important as the features we offer."

She praised Microsoft's new search engine. "I think Microsoft should be given kudos for Bing; it's a nice product," Bartz said. But she added that it's too early to say if people are visiting the site out of curiosity, or if it will help Microsoft win market share over the long term.

Yahoo plans a big marketing campaign in the second half of the year. "We're really going to move to reposition the Yahoo brand and Yahoo the company," she said, without giving details.

Bartz said nothing about a search advertising deal with Microsoft. Once again last week the companies were reportedly close to a search and online advertising deal, one that could see Microsoft pay several billion dollars for Yahoo's search advertising business.

Microsoft tried to buy Yahoo last year but eventually dropped its bid in a saga that cost Jerry Yang his job as CEO. He announced plans to step down in November and was replaced by Bartz in January.

Yahoo has also been cutting jobs to reduce costs. In May it said it would lay off 5 percent of its staff, or about 680 people. That followed cuts of about 2,600 employees in two rounds of layoffs during 2008.

Yahoo Web sites accounted for 19.6 percent of Internet searches in June, down a half-percent from the month before and well behind Google's 65 percent, according to figures from comScore. Microsoft was third with 8.4 percent of searches, up slightly on the strength of its new search Web site, Bing, comScore said.

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James Niccolai

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