UPDATE 2-Yahoo posts lower profit, gives weak 2007 forecast

(Adds executive comments, details, background)

By Eric Auchard

SAN FRANCISCO, July 17 (Reuters) - Yahoo Inc. (YHOO.O) reported a dip in quarterly profit on Tuesday as corporate advertisers spent less on its online ads, and the company gave a weaker-than-expected forecast for the rest of 2007.

Shares in the Internet media company fell 3.6 percent in extended trade. Investors are waiting to gauge the strategy of a newly revamped management team that must contend with the growing strength of rival Google Inc. (GOOG.O).

"Push is coming to shove at Yahoo," said RBC Capital Markets analyst Jordan Rohan. "We can see why (former Chief Executive) Terry Semel volunteered to exit stage left. It's a mess."

Jerry Yang, the company's co-founder who took the CEO job in June, vowed to deliver a new strategic plan for Yahoo, seeking to convince investors he is open to change.

"I intend to spend the next 100 days or so focused on mapping out a strategic plan," Yang told Wall Street analysts on a quarterly conference call. "There are no sacred cows."

"I may not have all the answers, as of today, but I have a pretty strong idea of where I want to go," he said.

Net income for the second quarter fell to $161 million, or 11 cents per diluted share, from the year-earlier quarter's $164 million, or 11 cents per diluted share.

The earnings were in line with the company's previously lowered forecast and Wall Street's adjusted expectations.

Earnings excluding one-time items and stock options expenses were $238 million, or 17 cents per share, compared with $241 million, or 16 cents per share, a year ago.

Revenue excluding the cost of payments to advertising partners, or so-called traffic acquisition costs (TAC), rose 11 percent to $1.24 billion.

Analysts, on average, had predicted revenue excluding TAC of $1.243 billion, according to Reuters Estimates forecasts ranging from $1.20 billion to $1.29 billion.

By contrast, Google, the leading provider of Web search and pay-per-click ads, is expected to post later this week at least four-times-faster revenue growth in its own quarterly results.

LOWER VIEW FOR 2007

Yahoo has disappointed investors in five of the last six quarters and seen its share price drop roughly 30 percent since the start of 2006.

The company had warned in mid-June that slower growth in online display advertising used by corporate brand advertisers would offset somewhat better results from its recently upgraded search ad business, known as Project Panama.

Total revenue rose 8 percent to $1.70 billion. Gross marketing revenue from online advertising sales rose 7 percent to $1.49 billion, aided by an 18 percent increase in sales from Yahoo's network of owned and operated sites to $887 million.

Fee revenue, from sales of Internet access via broadband partners or subscription services such as premium e-mail, rose 12 percent to $212 million in the latest quarter.

Yahoo forecast revenue excluding payments to advertising affiliates of $1.17 billion to $1.31 billion for the third quarter and $4.89 billion to $5.19 billion for the full year.

It had previously expected such revenue to total $4.95 billion to $5.45 billion for the year.

The outlook was slightly below the range of analysts' forecasts of $1.24 billion to $1.39 billion in third quarter and $4.99 billion to $5.40 billion for the year. Third-quarter margins will fall to a range of 32 percent to 34 percent, their lowest levels for the year, Yahoo said.

Yahoo's display advertising is also under pressure from the popularity of lower-price ads on social network sites like MySpace and Facebook.

Susan Decker, who recently became company president, said display advertising growth will be slower in 2007 than a year ago, but still rise in the low- to mid-teen percentages.

She acknowledged that the Sunnyvale, California-based company had been slow to innovate in the display ad business. "We were slow to see the growing demand for performance marketing capabilities," she said.

Yahoo shares had closed up 3.1 percent at $27.53 in regular-session trading on Nasdaq. Following the report, the stock fell to $26.56. (Additional reporting by Michele Gershberg in New York)