* 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 stock)
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 than expected.
"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)