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Yahoo! lost the confidence of investors last night, despite posting solid earnings that were firmly in line with the company's predictions.

The results for Q2 2006 came in as expected, with revenues of $1.12bn after traffic acquisition costs (TAC) had been deducted, up 28 per cent from a year ago. Gross revenue was up 26 per cent to $1.58bn.

Yahoo! recorded a net income of $164.3m before accounting for stock-based compensation, up just $4.4m from the previous quarter, and in comparison to $754.7m a year ago. That quarter, however, was inflated by a sale of Google stock that Yahoo! had acquired as part of a favourable patent settlement. (Q1 and Q3 last year produced net income of $204m and $253m).

But CEO Terry Sempel warned that the software upgrade to its classified ad system, codenamed 'Panama', would be delayed and wouldn't now be ready until the first quarter of next year.

Yahoo! reported a solid increase in subscribers. 14.3m of the portal's 208m active registered users pay for additional services, up 42 per cent year on year and 8 per cent sequentially. And the recruitment drive continues: Yahoo! ended Q2 with 10,500 employees. Investment analysts noted however that the number of registered users had failed to increase, for the first time ever.

Although Yahoo! left its full year prediction unchanged, stock fell 14 per cent in after hours trading. ®

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