Yahoo!'s net profit and revenue fell in the first quarter but came in slightly better than expected by Wall Street analysts, sending shares in the Internet company higher in after-hours trading.
Yahoo! said net profit fell 28 percent in the first quarter compared to a year ago to $223 million dollars while revenue declined 24 percent to $1.2 billion.
Net revenue, which excludes traffic acquisition costs, the portion of revenue Yahoo! shares with its partners, fell six percent to $1.06 billion.
Earnings per share were down to 17 cents from 22 cents a year ago.
Yahoo! said the decline in net revenue was primarily due to the revenue share from its Internet search agreement with Microsoft.
Microsoft and Yahoo! entered into a search and advertising partnership in 2009 which calls for the US software giant to eventually power searches at all Yahoo! websites.
Yahoo! said display advertising revenue increased 10 percent to $471 million in the quarter while search revenue fell 19 percent to $357 million.
Yahoo! said it expected net revenue for the second quarter of between $1.07 billion and $1.12 billion.
The quarterly results for the Sunnyvale, California-based Yahoo!, while down year-over-year, were slightly better than expected by Wall Street analysts and Yahoo! shares gained 2.67 percent to $16.55 in after-hours trading.
Yahoo! chief executive Carol Bartz, in a conference call with financial analysts, said the search market "is encountering some issues related to Microsoft Ad Center technology."
She said it was not producing the revenue per search that had been expected but there "is a clear plan to address that" and the problems should be worked out by the end of the year.
"Overall our turnaround is proceeding on schedule and we are very confident Yahoo! is heading in the right direction," said Bartz, who was brought in a little over two years ago to help right the struggling Internet giant.
"We are solidly executing toward our plan for returning Yahoo! to sustainable revenue and profit growth," Bartz added said in a statement.
"During the quarter, we beat the midpoint of revenue guidance while continuing to deliver on the bottom line," she said.
"We continued to extend our lead as the world's premier digital media company with users to Yahoo! branded properties increasing 15 percent year-over-year and minutes spent increasing 17 percent."
Bartz also said Yahoo! was beta testing a "great" new email product which she said was faster than the current Yahoo! Mail.