By Alexei Oreskovic
SAN FRANCISCO (Reuters) - Yahoo Inc's first quarter revenue fell short of Wall Street targets, as the Internet company continued to feel the effects of declining traffic to its Web properties and of falling display advertising sales, sending its shares down more than 4 percent.
Yahoo Chief Executive Marissa Mayer said the company's plan to reverse the trend and restore the one-time Web powerhouse to its former glory was on track and would start showing results in the second half of the year. But she repeated previous comments that revitalizing Yahoo will be a long-term project measured in years.
"We are committed to growing our core business. First in line with the industry and ultimately surpassing it," said Mayer, a former Google executive who in July became Yahoo's third CEO in a one-year period.
Mayer said the company was making headway luring smartphone users to its services, with more than 300 million monthly mobile users in the first quarter, up from 200 million in the fourth quarter.
And she said that hiring efforts and acquisitions have positioned Yahoo to ramp up its product development and product releases in the coming months.
Yahoo's stock has surged more than 50 percent since Mayer took the helm in July, though analysts say much of the rise is due to stock buybacks and the value of Yahoo's Asian assets.
Evidence of a significant turnaround in Yahoo's business was hard to spot in the company's first-quarter earnings report, however.
Display ad revenue, which accounts for roughly 40 percent of Yahoo's revenue, declined 11 percent on an adjusted basis in the first three months of the year.
"This is a core business that needs significant work," said Macquarie Research analyst Ben Schachter. "The core takeaway here is more time is going to be needed."
Yahoo shares fell to $22.73 in after-hours trading on Tuesday.
Yahoo also projected net revenue for the second quarter of $1.06 billion to $1.09 billion in a presentation posted on its website after its earnings release on Tuesday. That was below the average analyst expectation of $1.11 billion in second quarter net revenue, according to Thomson Reuters I/B/E/S.
MICROSOFT SEARCH PARTNERSHIP CONTINUES
Yahoo and Microsoft entered into a 10-year search partnership in 2010, hoping their combined efforts could mount a more competitive challenge to Google Inc, the world's No.1 search engine.
Yahoo Finance Chief Ken Goldman said on Tuesday that a revenue guarantee that Microsoft Corp provided Yahoo under the terms of the companies' search partnership ended in March.
The partnership, which still exists, has not lived up to expectation. Yahoo's revenue per search remains below where it was before the deal with Microsoft, though Yahoo's Goldman said on Tuesday that the gap had narrowed in recent months.
Yahoo was once among the Internet industry's most powerful companies, it has lost its appeal among consumers and advertisers to rivals such as Google Inc and Facebook Inc.
Mayer has said that building better online products that entice consumers to spend more time on Yahoo properties, and developing new services for smartphones and other mobile devices, are key to turning the company around.
Yahoo said it earned $390 million, or 35 cents a share in the first three months of the year, compared to $286 million, or 23 cents in first quarter of 2012.
"People were disappointed by the display advertising because that's Yahoo's key business," said Sameet Sinha, an analyst at B. Riley.
"We were looking for display to be down about 9 percent and they came in at negative 11," said Sinha.
Yahoo's overall net revenue, which excludes fees shared with partner websites, was $1.07 billion in the first quarter, roughly flat from the year-ago period, according to Yahoo.
Yahoo's net revenue was at the low-end of the $1.07 billion to $1.1 billion it forecast in January, in what was the first financial outlook that Yahoo offered since Mayer became CEO. Analysts polled by Thomson Reuters I/B/E/S on average expected net revenue of $1.1 billion.
(Reporting By Alexei Oreskovic with additional reporting by Malathi Nayak; Editing by Bernard Orr)