Yahoo blames Microsoft partnership for profit slump

Yahoo has reported a 28 per cent drop in first-quarter profits, which the company attributed to technical issues with the Microsoft search partnership.

Net income fell to $223m for the quarter ending 31 March from $310m last year, while revenue for the period was $1.06bn, a six per cent year-on-year decrease, according to the Yahoo Q1 2011 results (PDF).

The web firm said that the poor results were "primarily due to the revenue share related to the search agreement with Microsoft", and that other areas of its business had performed strongly.

"During the quarter, we beat the midpoint of revenue guidance while continuing to deliver on the bottom line," said Carol Bartz, Yahoo chief executive.

Yahoo search revenue reached $455m, 46 per cent down since the first quarter of 2010, while display advertising saw a revenue rise of six per cent against last year to £523m.

Bartz said in a conference call that there were technical issues with the Microsoft partnership, and that Yahoo will halt the rollout of the shared system until the issues are fixed, according to reports.

Microsoft and Yahoo announced a 10-year search partnership in July 2009, shortly after Bartz took over as chief executive from Jerry Yang.

Under the terms of the agreement, Microsoft’s Bing powers Yahoo search, while Yahoo heads up the search advertising strategy.