Yahoo! profits up but revenues fall

The quest by Yahoo! chief Marissa Mayer to reverse the struggling Internet pioneer's fortunes stumbled on Tuesday as the company reported that profit rose modestly but revenue had slipped.

Yahoo! shares fell 3.5 percent to $22.95 in after-hours trade after the California company reported net income of $390.9 million, up 38.7 percent, but that revenue fell 6.6 percent to $1.14 billion in the quarter that ended March 31.

Earnings per share came in at 35 cents, compared to 23 cents a year earlier.

Display ad revenue dropped 11 percent from the same period last year while overall search revenue was down 10 percent after factoring in money paid to partners that route traffic to Yahoo! properties, according to earnings figures.

In contrast, the overall US digital ad market grew 14.8 percent to $9.64 billion in the first three months of this year, according to industry tracker eMarketer.

"I'm pleased with Yahoo!'s performance in the first quarter," Mayer said in a release.

"I'm confident that the improvements we're making to our products will set up the company for long-term growth."

Google and Facebook are expected to account for 41.6 percent and 6.5 percent of US digital ad revenue this year, respectively, according to eMarketer.

"It's a similar story in the display advertising market," eMarketer said in a release.

While Yahoo! reported a decline in display ad revenue, "overall display market spending is increasing far faster, and competitors like Google and Facebook continue to stretch their lead," according to eMarketer.