Yahoo! blames quarterly tumble on Microsoft search pact

Not what we earn, how we report it

Yahoo! reported a drop in revenue and sales for the first quarter, blaming the mechanics of reporting its search pact with Microsoft for the fall.

GAAP sales fell 24 per cent to $1.21bn, compared with the same period in 2010. Net income fell 28 per cent to $223m while earnings per share were down 23 per cent to $0.17.

The company on Tuesday also reported revenue excluding Traffic Acquisition Costs (TAC) was down 6 per cent to $1.06b for the first three months.

In both cases Yahoo! said the declines were in part due to how it recognizes revenue from Microsoft. The falls, Yahoo!, said were:

"Primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft. For transitioned markets (U.S. and Canada), Yahoo! now reports revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis."

The first-quarter results include $56m in search operating cost reimbursements and $11m in transition cost reimbursements from Microsoft under the companies' search agreement that sees Yahoo!'s web properties swap over to Microsoft's Bing search and advertising platform. Yahoo! noted search operating cost reimbursements would decline as its properties complete the transition.

Chief executive Carol Bartz said in a statement: "We are solidly executing toward our plan for returning Yahoo! to sustainable revenue and profit growth."