July 19, 2011 / 8:29 PM / 7 years ago

Yahoo revenue dips in Q2, shares fall 2 percent

SAN FRANCISCO (Reuters) - Yahoo Inc’s net revenue declined slightly in the second quarter on weakness in its display advertising business, and shares of the Internet search company dropped 2 percent in after-hours trading.

Yahoo reported net income of $237 million, or 18 cents a share, compared with $213 million, or 15 cents a share, in the year-earlier quarter. Analysts polled by Thomson Reuters I/B/E/S, on average, were looking for 18 cents.

The company forecast third-quarter net revenue, which excludes the fees that Yahoo pays to partner websites, of between $1.05 billion and $1.1 billion.

In a statement, Yahoo Chief Executive Carol Bartz said the company saw “softness” in its display advertising revenue during the second half of the quarter due to changes in Yahoo’s sales organization aimed at positioning Yahoo for “more rapid display growth in the future.”

Yahoo said revenue from display advertising, which represents roughly half of Yahoo’s business, inched up 2 percent year-over-year in the second quarter, compared with the 6 percent growth rate achieved in the first quarter.

Yahoo Chief Financial Officer Tim Morse told Reuters in an interview the changes that Yahoo was making to its North American sales force meant that Yahoo was underequipped to meet demand.

“In the second half for the quarter we didn’t close out the good, branded advertising revenue like we could have and we should have and we plan,” he said.

By contrast he said that Yahoo was making progress in rectifying some of the problems in its search partnership with Microsoft, which had crimped Yahoo’s revenue per search.

Last quarter, Yahoo said its search partnership with Microsoft was taking longer than expected to pay off due to technical imperfections in the search advertising system. As a result, Yahoo said its revenue per search won’t rise to levels it experienced pre-Microsoft until the end of the year.

“Of the gap that we identified as of the April call, we closed about 20 percent of it in this quarter,” said Morse.

Search revenue declined 45 percent year-over-year to $467 million.

Yahoo is one of the most popular destinations on the Internet and a leading provider of online display ads in the United States, but the company faces stiff competition from social networking service Facebook and search leader Google.

Yahoo said net revenue in the second quarter was roughly $1.1 billion, compared with $1.13 billion in the year-earlier period and in line with Wall Street expectations.

The company’s shares were down 28 cents at $14.30 in after-hours trade.

Editing by Steve Orlofsky

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