* Q1 net revenue $1.13 bln vs Street's $1.17 bln
* Q1 search advertising revenue down 14 pct
* Q1 adjusted EPS 15 cents vs Street's 9 cents
* Q2 net revenue could miss average Street view
* Yahoo shares down more than 3 percent
(Adds CEO comments from conference call, background, updates
By Alexei Oreskovic
SAN FRANCISCO, April 20 Yahoo Inc (YHOO.O)
posted slightly lower-than-expected quarterly revenue and
indicated that current-quarter sales could again miss Wall
Street estimates, as it struggles to compete in Web search
against Google Inc (GOOG.O).
Shares of Yahoo fell 3.5 percent in extended trading, after
its outlook implied that second-quarter net revenue would be
between $1.128 billion and $1.184 billion, compared with the
average analyst estimate of $1.184 billion.
"It's somewhat disappointing," said Clay Moran, analyst at
Benchmark, noting a 14 percent year-over-year drop in search
advertising revenue. "So they're continuing to struggle in
search and still contracting in a meaningful way ... The
(improving) economy hasn't helped them in any noticeable way."
But Yahoo executives said the company's declining share of
the Internet search market had hit bottom and was poised to
begin growing again.
"We stabilized our search share and we believe it will tend
up in Q2," Yahoo Chief Executive Carol Bartz said in a
conference call with analysts on Tuesday.
Yahoo's first-quarter net revenue, which excludes the money
the company pays to partner websites known as traffic
acquisition costs (TAC), fell 2.6 percent to $1.13 billion,
below the average analyst estimate of $1.17 billion, according
to Thomson Reuters I/B/E/S.
Net income rose to $312.3 million, or 22 cents a share,
from $118.7 million, or 8 cents a share, a year earlier, helped
by the sale of the Zimbra business and a partnership with
Microsoft Corp (MSFT.O) on search.
Excluding those items, Yahoo posted a profit of 15 cents
per share, beating the average analyst estimate of 9 cents,
according to Thomson Reuters I/B/E/S.
For a graphic on Yahoo earnings,
please click: link.reuters.com/mam68j
Chief Financial Officer Tim Morse told Reuters in an
interview that Yahoo's Internet display advertising business
was strong during the first quarter, growing 20 percent
year-on-year, but that the search business came in a bit weaker
"Search queries just didn't seem to grow at the pace they
had previously," said Morse.
Yahoo's revenue per search increased 2 percent from the
seasonally strong fourth-quarter, but were down 14 percent
year-over-year, Morse said.
Google, the world's No. 1 search engine, reported a 23
percent increase in first-quarter revenue last week. But the 4
percent sequential decline in Google's cost-per-click, the
price advertisers pay for search ads, disappointed investors,
contributing to a more than 7 percent sell off in Google shares
the following day.
Yahoo, the world's No. 2 search engine, behind Google, has
been shedding assets and reorganizing under Chief Executive
Carol Bartz, who took the helm in January 2009.
In July, Bartz signed a 10-year deal with Microsoft to save
hundreds of millions of dollars a year in expenses by shifting
Web indexing chores to Microsoft, while Yahoo focuses on
improving the consumer search experience.
But Yahoo has seen its search market share erode over the
past year: it held 16.9 percent of the U.S. search market by
queries in March, according to comScore, down from 21 percent
in January 2009. Google's share was 65.1 percent in March.
Yahoo said revenue in the first quarter rose 1 percent to
$1.60 billion. It forecast revenue in the second quarter of
$1.6 billion to $1.68 billion, with TAC expected to account for
29.5 percent, according to Morse.
Shares of Yahoo, which have risen more than 10 percent
since the start of April, fell to $17.73 in extended trading
after closing the Nasdaq session nearly flat at $18.38.
(Reporting by Alexei Oreskovic; Editing by Bernard Orr)
(Additional reporting by Bill Rigby and Alexandria Sage;
Editing by Gary Hill, Tiffany Wu and Carol Bishopric)