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Yahoo! profits! drop! 19! per! cent!

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Yahoo!'s profits took a significant tumble during its last fiscal quarter, falling 19 per cent from the same quarter last year. But CEO Jerry Yang says the company's health is pretty darn good considering the turmoil that's surrounded it since Ballmer came calling back in February.

"The indicators of Yahoo!'s progress are promising," Yang said during a conference call with industry analysts and reporters. "Frankly, I think Yahoo!'s ability to perform is especially impressive in light of the extraordinary events surrounding the company this year. It has been nearly six months since Microsoft made an unsolicited proposal for Yahoo!, and everyone here - the board, management, and over 14,000 Yahoos around the world - have continued to work towards one goal: maximizing value for our shareholders."

Yahoo! did increase revenue in Q2, from $1.698bn in the same quarter last year to $1.798bn. That's an 8 per cent jump. But it's still less than those Wall Street prognosticators prognosticated. Excluding certain traffic-building payments to other web sites, analysts expected revenues of $1.37bn, and Yahoo! gave them only $1.346bn.

But Yang zeroed in on the bright spots. "We continued to see strong, double-digit user growth, and we increased our page views more than 20 per cent year-over-year," he trumpeted, "giving us the opportunity to monetize a large growing base of high-quality, contextual relevant [ad] inventory."

Meanwhile, search queries increased 11 per cent from last year. But as Yahoo! awaits regulator approval for its search ad pact with Google, Yang put the spotlight on display ads. "A core part of our strategy is to leverage our leading position in display... by adding high quality affiliates," Yang said. Display revenue for both Yahoo! sites and affiliate sites grew over 20 per cent during the quarter.

Yang acknowledged that a softening economy has slowed demand for "branded" display ads, where advertisers simply spew their name across the web. But he said many of these advertisers are shifting their dollars to Yahoo! "performance" display ads, where payment requires a specific action. "Because we've positioned Yahoo! well in both display and performance marketing, we were able to grow out display revenue in the quarter."

He also acknowledged that revenue wasn't quite as high as the company anticipated. But he wants everyone to know that some really old deals - the sale of Overture Japan to Yahoo! Japan and the renewal of the Yahoo! ISP branding pact with AT&T - are still dragging earnings down.

Yang concluded his typically impassioned speech by repeating - as the company has repeated countless times over the last several months - that maximizing shareholder value is priority number one. But it's still anyone's guess how it will achieve such maximization. The Google deal is still very much in the air, and Carl Icahn - who has now landed a Yahoo! board seat along with two of his buddies - is still calling for some sort of sale to Microsoft. ®

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