Financial News

Yahoo (NASDAQ: YHOO - news) 's search engine advertising business suffered a bigger dent than expected in the latest quarter as the internet company wrestled with weakness across all parts of its operations and outlined higher investment in the months ahead.

Carol Bartz, chief executive, also warned that it was "too early to call" whether the online advertising markets had stopped shrinking, though she added: "Overall, we're seeing less fear in the marketplace."

News of the decline in search, where revenue fell by 15 per cent, comes after an intensification of talks with Microsoft (NASDAQ: MSFT - news) over a search advertising partnership between the two companies. Ms Bartz did not comment on the talks, though she went out of her way to compliment the software group's recent relaunch of its own search engine.

"Microsoft should be given kudos for Bing. I think they've done a good job," she said.

The decline in search exceeded a 14 per cent fall in Yahoo's display advertising operations, a business that had been seen as more vulnerable to the economic downturn.

However, Ms Bartz dismissed suggestions that Yahoo had lost ground in search, particularly when compared with Google (NASDAQ: GOOG - news) , which reported an increase in revenues in its own latest quarter. "Our search volume is holding fine," she said, blaming the fall instead on "fewer click-throughs and fewer buyer intents" on the part of users.

The lower revenue-per-search in the latest quarter did not point to a broader trend, she said.

Yahoo's shares slipped by more than 2 per cent in after-market trading after it reported that net revenues had fallen by 16 per cent overall in the second quarter of the year to $1.136bn.

Thanks to a one-off gain, it met consensus earnings expectations of $141m, or 10 cents a share, an increase of 8 per cent from the year before.

The company's third-quarter financial projections were also below some analysts' expectations, prompting concerns about higher costs linked to its efforts to revive the Yahoo brand.

Investment in improving its services would add $75m to costs in the latest quarter, while cutting adverts that Ms Bartz described as irrelevant and irritating to users would slash $75m a quarter from revenues.

Yahoo also said it would begin a marketing campaign this quarter to rebuild its brand, with costs rising in the final months of this year and 2010.