Competition hits profits at Yahoo

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Terry Semel, chief executive of Yahoo, pledged to “get back to basics” on Tuesday after increased competition for online advertising and options expenses led to a drop in profits at the web portal.

With Google, Yahoo’s main rival, set to report on Thursday, investors’ nerves are likely to remain on edge as they try to determine whether Yahoo’s woes are unique or a sign of a broader malaise in the online advertising market.

Mr Semel attempted to draw a line under Yahoo’s results on Tuesday. “I am not satisfied with our… performance, and we intend to improve it,” he said. “We are not exploiting our strengths as we should be.” Mr Semel’s comments came as Yahoo trimmed its outlook for the coming quarter, underlining concerns that new advertising revenue could be passing by portals such as Google and Yahoo in favour of “stickier” sites such as MySpace and Facebook.

Yahoo’s shares jumped more than 4 per cent in after-hours trading, however, after the company said it had launched a search advertising programme to try to make up ground lost to Google.

The shares had fallen 11 per cent in the wake of Yahoo’s advertising warning last month. In all, they have fallen more than 40 per cent from a high of $43.42 in January.

Net profits fell 37 per cent from $254m a year earlier to $159m, or 11 cents a share. This was in line with most estimates. Revenues rose 19 per cent from $1.3bn one year ago to $1.6bn.

“The market is going through a significant transition,” Mr Semel said.

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