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Yahoo outlook misses, shares slip

Yahoo Inc's third-quarter forecasts fell short of Wall Street expectations, sending shares 3.2% lower, as the Internet company announced plans to step up spending despite persistent weakness in the advertising market. Chief Executive Carol Bartz 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.

Bartz said Yahoo 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.” Bartz did not address reports that discussions about a search and advertising partnership with Microsoft Corp were gaining steam. But she 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.

Yahoo is the second-largest Internet search engine in the United States with a 19.6% market share in June, according to comScore, while Microsoft occupies the No. 3 spot with 8.4% share. Some analysts and investors believe the two companies need to team up to better compete with Google Inc, which has a 65% share of the US search market.

Yahoo forecast revenue for the current quarter of $1.45 billion to $1.55 billion, while pegging traffic acquisition costs - the portion of revenue that Yahoo pays its partners - at 26% of revenue. That suggests net revenue of $1.07 billion to $1.15 billion, by Reuters calculations, below the $1.17 billion expected by analysts. Bartz said Yahoo expects to lose about $75 million in revenue from its “quarterly base-line” as a result of an initiative to eliminate “disruptive” ads the company feels irks its users. (Reuters)