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Yahoo! revenues dipped 4 per cent during its fourth quarter as the company adjusts to life as a Microsoft spouse.

During the quarter ending December 31, Yahoo!' pulled in $1.2bn if you exclude traffic acquisition costs, down from $1.26bn in the same quarter last year. The company said the 4 per cent drop was due in large part to its search revenue–sharing agreement with Microsoft.

Nonetheless, the company's fourth quarter profits climbed to $312 million, a 104 per cent increase over the previous year. "We just completed a very encouraging quarter and year for Yahoo! We made substantial strides to improve profitability," CEO Carol Bartz said during a conference call with reporters and analysts, pointing out that the company doubled not only operating income but also operating margins, earnings per share, and return on invested capital.

And Bartz continues to cut costs. Before unveiling its fourth quarter financial results on Tuesday afternoon, Yahoo! announced that it's cutting another one per cent of its staff, or roughly 135 employees. "To increase profitability," Bartz said, "we have to be focused and efficient."

The move is in stark contrast to the news that emerged from Mountain View on Tuesday. Google told the world that in 2011 it would set a new hiring record, topping the 6,000 hires it made in 2007. In 2010, the search giant added about 4,000 employees.

Yahoo! had previously said that its Q4 revenues would be down due to its revenue-sharing deal with Microsoft and the decision to offload its Zimbra and HotJobs units. If you exclude these items, Bartz said today, revenues would have climbed 2 per cent.

"As we said last quarter, this is all part of our plan to turn the company around," Bartz said.

Though Yahoo!'s underlying search and search-ad infrastructure is now operated by Microsoft, Bartz reiterated that search is still an "important part" of the company's business, and that she expects to see search revenue grow by the end of the year. "Whenever you make big changes, as we're doing with our search alliance, it takes some time for the marketplace to adjust," Bartz said.

Meanwhile, the company's display-ad business is growing. According to Bartz, display-ad dollars grew 16 per cent over the previous year and 27 per cent over the previous quarter. On the whole, display revenue for 2010 grew 17 per cent over 2009. ®

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