Mixed fortunes for Yahoo

YAHOO has said an important partnership with Microsoft is taking longer than expected to pay off, but the company posted quarterly earnings that topped Wall Street targets, sending shares up in after-hours trading.

The mixed progress report comes as expectations for the web portal remain low two years into chief executive Carol Bartz’s effort to revive growth at the company.

“Clearly there is some improvement in the business here, both from a topline perspective and a margin perspective,” said Pacific Crest Securities analyst Steve Weinstein.

But analysts said Yahoo’s search business, which experienced a 19% year-on-year decline in net revenue in the first quarter, is a cause for concern.

Yahoo executives said the company would delay plans to use Microsoft’s search advertising system in certain markets as it waits for Microsoft to improve the technology.

In its current state, Yahoo executives said, the technology was not delivering the expected lift to Yahoo’s search ad revenue.

Revenue per search won’t rise to levels Yahoo experienced pre-Microsoft until the end of the year, compared with a previous forecast of mid-year, Bartz said. She was confident Microsoft had a clear plan to address the issues. And she noted that under the 10-year deal Yahoo struck with Microsoft in 2009, Yahoo gets reimbursed until the end of next March for any decline in revenue per search.

Looking forward, Yahoo projected net revenue between $1.08 billion and $1.13bn in the second quarter. Analysts were looking for $1.1bn.

Yahoo is the number one provider of online display ads in the United States, but the company is facing increasing competition from social networking service Facebook and continuing pressure from search leader Google.