Carol Bartz, the chief executive, said Yahoo was hiring more engineers and sales and marketing staff as it invests in new products and branding – a reversal from the cost cuts the company embarked upon in past months.
Ms Bartz, on a conference call, said the company was committed to bolstering its profit margins in the long run. But in the near term, she said, “there are things we’ve got to get done and a lot we don’t control in this economic climate.”
She did not address reports that discussions about a search and advertising partnership with Microsoft were gaining steam. But Ms Bartz described Microsoft’s new search engine, Bing, as a “good product” that improves experimentation around search and she said she believed there were clear benefits in the search business to being large.
“The noises were all encouraging,” Sanford Bernstein analyst Jeff Lindsay said regarding a potential deal with Microsoft. “If there wasn’t some basis to these discussions, she would have been far more negative” about Bing.
Yahoo is the second-largest Internet search engine in the United States with a 19.6pc market share in June, according to comScore, while Microsoft occupies the No. 3 spot with 8.4pc share. Some analysts and investors believe the two companies need to team up to better compete with Google, which has a 65pc share of the US search market.
Yahoo forecast revenue for the current quarter of $1.45bn to $1.55bn, while pegging traffic acquisition costs – the portion of revenue that Yahoo pays its partners – at 26pc of revenue.
Bartz said Yahoo expects to lose about $75m in revenue from its “quarterly base-line” as a result of an initiative to eliminate “disruptive” ads the company feels irks its users. Then, Yahoo plans to spend an additional $75m in the third quarter on a new marketing campaign and product improvements.
The company announced a 13pc fall in second-quarter revenue to $1.57bn (£957m) from a year ago as advertisers remained tight-fisted. Second-quarter net income attributable to Yahoo was $141.4m, compared with $131.2m, a year earlier.
Display advertising revenue fell 14pc year-over-year in the second quarter, while search advertising revenue declined 15pc. Total revenue dropped 13pc to $1.57bn from a year ago as advertisers remained tight-fisted. Revenue from search advertising fell 15pc from the year-ago quarter, while display ad revenue fell 14pc.
Yahoo reported its financial results on the same day it introduced a major redesign of its homepage. The company hopes the move will make it more relevant to users increasingly turning to social networking sites like Facebook and Twitter.
It also announced a deal with AT&T Interactive on Tuesday in which AT&T’s sales force will sell display ad space on Yahoo to local businesses.