Weak Earnings Keep Yahoo Shareholder Angst Simmering

Yahoo may have made peace with investor-agitator Carl Icahn to avoid a proxy fight, but that couldn't give it a reprieve from its own economic struggles. The company said its second-quarter profit fell 18 percent from the year-ago period.

Net income for the period fell to $131 million on 9 cents a share from $161 million on 11 cents a share, Yahoo reported July 22. Analysts surveyed by Thomson Financial had projected earnings of 11 cents per share.

Yahoo's revenue totaled $1.8 billion for the second quarter, a 6 percent improvement from $1.7 billion from the second quarter of 2007. Net revenue, or sales excluding TAC—the traffic acquisition costs made to other Web sites to corral traffic—rose 8 percent to $1.35 billion.

After the bell, Yahoo's shares dropped 1.25 percent to $21.40.

Yahoo, like Google, which reported a lower-than-expected profit last week despite announcing an impressive 39 percent growth in sales for the second quarter, is feeling the pinch of more conservative spending on online ads.

Yet Yahoo CEO Jerry Yang was unbowed by the results, repeating his new favorite mantra about Yahoo's long-term growth prospects.

"Yahoo is executing against its strategy, and we believe is well positioned for long-term growth and maximizing stockholder value," said Yang in a statement, pointing to benefits from its new open search platform, dubbed SearchMonkey, and key partnerships in Q2.

These include a major search advertising deal with Google and work with agency partners, including Publicis, WPP, Havas and publishing partners, such as Walmart.com, CNET and Turner. Yahoo also boasts strong mobile and wireless ad deals.

It would be stating the obvious to say that Yahoo's Q2 results were disappointing. Yet they were expected and will likely neither help nor hinder Yahoo as it heads into its annual shareholders meeting Aug. 1.

There, Yahoo's investors will hold court on the fiscal state of the company, seeking assurances that the company is in good shape.

No doubt many have already decided that changes are needed, which may include the ouster of Yang and the company's board. The meeting could get ugly, but I would love to be a fly on the wall.