Yahoo warned revenue will again slide this quarter as it bleeds traffic to Google and Facebook.
Yahoo reported its third consecutive quarter of declining page views on its websites. CEO Carol Bartz, who after two years in charge is facing increasing pressure to turn the once-dominant internet portal around, promised investors revenue growth will return in 2011's second half once a previously announced tie-up with Microsoft takes off.
The company's shares slid roughly 2 per cent after the close of trading. The weaker-than-expected first-quarter sales forecast came the same day Yahoo announced its second round of layoffs in six weeks, of about 1 per cent of its global workforce.
In contrast, rival Google followed that with a declaration it is preparing its biggest year of hiring ever in 2011.
"This is still a company in transition that hasn't really got where it needs to be yet," said UBS analyst Brian Pitz.
Yahoo has struggled to contain costs and jumpstart revenue growth.
In October, it began outsourcing its search advertising service in the United States and Canada to Microsoft, in keeping with the 10-year search partnership the two sealed in 2009. Under the deal, Yahoo will share 12 per cent of its search advertising revenue with Microsoft.
"The basic problem is they are not getting the new incremental dollars that are coming from advertisers," Mr Pitz said. "A lot of the new consumer electronic product dollars are going straight to social media or going to Google's Doubleclick.
Chief financial officer Tim Morse said Facebook competition was not hurting Yahoo's display advertising business.
"All impressions aren't created equal. With the big customers and branded advertisers, and the premium dollars being spent, we really aren't seeing that kind of competition," he said in an interview with Reuters.
Mr Morse told Reuters after yesterday's financial results were released that there were still more costs to come out of Yahoo in coming years.
Asked if that meant additional layoffs, Mr Morse said: "Over the next few years, there will definitely be some more people who leave, there will be more people who are hired."
Net revenue, which excludes revenue shared with website partners, totaled $1.2 billion in the three months ended Dec. 31, compared with $1.26 billion in the year ago period. Analysts were looking for $1.19 billion in net revenue.
And it projected that net revenue in the first quarter will range between $1.02 billion and $1.08 billion, compared with the $1.13 billion expected by analysts.
Its fourth-quarter earnings also lagged targets.
Yahoo said its net income in the fourth quarter was $312 million, or 24 cents a share, compared with $153 million, or 11 cents a share in the year ago period. Analysts were looking for 22 cents a share.
Yahoo shares were down at $15.67 in extended trading after closing out the regular session at $16.02.
