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Yahoo! blames so-so revenues on 'sluggish' search

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After all that Meltdown-induced cost-cutting and Bartzian reshaping, Yahoo!'s profits rose 32 per cent during the second quarter. But revenues grew a mere two per cent, failing to reach the expectations of both the Wall Street guessmen and Yahoo! itself.

"We continued on our promise to improve operating income and margins," chief executive Carol "F Bomb" Bartz said during a conference call with analysts and reporters. "But we were on the low-end of our revenue guidance."

Bartz said that although the company's share of the search market grew during the second quarter, it didn't "monetize searches as much as we expected." In other words, as Yahoo! prepares to replace its own search infrastructure with Microsoft, the serious search dollars just aren't there.

"Search was basically sluggish for us the whole quarter," Bartz said.

What's more, Bartz said, several big display advertisers "pulled back" on their spending at the end of June. Nonetheless, display revenue from Yahoo! owned and operated sites rose 19 per cent, and Bartz indicated that those large advertisers have already pumped up their spending in Q3.

"The second week of June, we saw demand slow down as a handful of advertisers puled back," Bartz said. "We believe it was due to quarterly expenses manage for [these] companies. The first few weeks of July indicate we're back to normal."

During the quarter ending June 30, Yahoo! pulled in revenues of $1.601bn, up from $1.573bn during the same period last year, when the company was at a low ebb. But now that Bartz has significantly streamlined operations, profits were up 32 per cent – if you exclude certain restructuring charges in 2009 and 2010.

Net revenue - which excludes dollars Yahoo! shares with partner websites - topped out at $1.13bn. Wall Street guessmen polled by Thomson Reuters had expected $1.16bn.

Bartz said that during the quarter, Yahoo! moved 125 search employees over to Microsoft, and the company has begun testing a setup where Microsoft will power about 25 per cent of Yahoo! organic searches and "a lower percentage" of paid searches.

Microsoft has said that it will take over Yahoo!'s organic search in September and its paid search in October. Bartz indicated that this is still the plan, but she also suggested that the paid search switch may come later. "Because the holiday season is so important to our advertisers, we will not give the go-ahead for the US and Canada unless we're confident of a smooth transition – with quality."

In a sudden change of tact, Bartz also acknowledged that Yahoo! is still a technology company, plugging its use of Hadoop, the open source distributed number-crunching platform. "Hadoop is a core technology behind every click on Yahoo!," she said.

"Our approach to Hadoop development has won us a lot of admirers, not just for the huge amount of technology expertise required to build it, but for making it open source."

Hadoop didn't actually begin life at Yahoo! But Yahoo!'s involvement certainly bootstrapped the platform. It is still the project's largest contributor.

Nice of Bartz to take notice. ®

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