Shares of Yahoo fell sharply in after-hours trading today after the company's first-quarter earnings revealed a sharp fall in display advertising revenue.
Yahoo's earnings rose 26 percent to $420 million in the first quarter of 2013 after stripping out onetime charges on essentially flat sales.
Wall Street had expected a 9 percent increase in net income on 2 percent sales growth. Revenue, excluding traffic acquisition costs, was $1.07 billion for the first quarter of 2013, flat compared to the first quarter of 2012.
Non-GAAP net earnings per diluted share was 38 cents in the quarter compared to 27 cents in the first quarter a year ago.
Although CEO Marissa Meyer said in a canned statement that she was pleased with the company's performance in the quarter, the company registered a sharp drop in revenue from display ads. Display ads fell year to year to $455.01 million from $511.2 million in 2012.
However, the immediate investor reaction was negative, as the stock tanked nearly 4 percent in after-hours trading.
Analysts said that while the company's search business came in somewhat better than expected, Yahoo's performance in display advertising registered deep disappointment.
"People were disappointed by the display advertising because that's Yahoo's key business," Caris analyst Sameet Sinha told Reuters. "We were looking for display to be down about 9 percent, and they came in at negative 11. When you compare this to what it was down last quarter -- it was 4.5 percent -- you can see acceleration in the decline. We'll be looking for reasons behind that."
Since taking over as CEO on July 12, Mayer has ordered the redesign of the company's home page, e-mail service, and Flickr photo-sharing service. Yahoo shares have responded, climbing more than 50 percent. They closed today at $23.79, compared with a 52-week low of $14.59.