Yahoo! profit takes hit

First-quarter earnings down 11%

SAN FRANCISCO — Yahoo!’s first-quarter profit fell 11%, disappointing investors who have been betting that the Internet icon had regained its stride after stumbling through much of last year.

The letdown zapped Yahoo!’s stock, which plummeted more than 8% after the results were released Tuesday. Management added to the angst by leaving its financial outlook for the remainder of the year unchanged from its last forecast three months ago.

The Sunnyvale-based company earned $142.4 million during the three months ended in March. That compared with net income of $159.9 million for the same period last year.

Revenue for the period rose 7% to $1.67 billion.

After subtracting advertising commissions, Yahoo!’s revenue totaled $1.18 billion. That figure fell about $25 million shy of the average analyst projection, according to Thomson Financial.

“When you sift through everything, there is not a whole lot to get excited about right now,” said Cantor Fitzgerald analyst Derek Brown.

Yahoo! shares shed $2.61, or 8.1%, in extended trading after gaining 48¢ to close at $32.09 on the Nasdaq stock market.

The first-quarter downturn may renew concerns about Yahoo!’s ability to compete against Google, whose Internet-leading search engine propels the Web’s most lucrative advertising network.

Through March, Google held a 48% share of the U.S. search market compared with 27.5% for Yahoo!, according to comScore Media Metrix.

The balance of power will likely come into even sharper focus Thursday when Mountain View-based Google is scheduled to report its first-quarter results.

Yahoo! has pledged to narrow the gap with its rival this year with the recent introduction of a new marketing platform — dubbed “Panama” — that is supposed to do a better job of distributing ads that will spur revenue-generating clicks. Meanwhile, Google is bolstering its arsenal with its planned acquisition of a major online advertising placement service, DoubleClick.

Although Yahoo!’s new ad system rolled out in the United States in early February, the company’s management has repeatedly advised investors that the financial benefits are unlikely to become evident until the second half of this year.

Investors nevertheless had been hoping for more signs of a comeback in the first quarter, a sentiment that had helped lift Yahoo!’s stock price by 26% since the end of December.

The rally recouped some of the losses registered last year when Yahoo! shares dropped by 35% as the company struggled to keep up with Google. The lackluster performance culminated in a management shakeup that included the departure of Yahoo!’s chief operating officer, Dan Rosensweig.

Some analysts believe Yahoo! chairman Terry Semel could lose his job as chief executive officer if Panama doesn’t accelerate the company’s earnings growth. Semel, who is approaching his sixth anniversary as Yahoo!’s CEO, didn’t sound worried during an interview Tuesday.

“I feel really good,” he said. “The results are great, and we are very happy with what we have done so far.”

Besides Panama’s long-awaited debut, Yahoo! has also raised Wall Street hopes by negotiating potentially lucrative advertising partnerships with Viacom and the publishers of 264 U.S. newspapers.

Yahoo! on Tuesday touted another new partnership with PayPal, an online payment service owned by Internet auctioneer eBay. To help counter Google’s heavy promotion of its own “Checkout” payment service, Yahoo! will begin featuring small shopping cart icons alongside the ads of about 2,500 merchants who accept PayPal. The financial terms of Yahoo!’s PayPal partnership weren’t disclosed.

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