Yahoo's total revenue took a steep dive in the second quarter as it struggled in display advertising, a core market where it has historically been a leader. The company managed to increase its profit by 11 percent, however.

Total revenue for the three months ending June 30 declined 23 percent year on year to US$1.22 billion, Yahoo announced Tuesday. Subtracting the advertising commissions and fees it pays to partners, net revenue came in at US$1.07 billion, down 5 percent from 2010's second quarter and below the US$1.11 billion consensus estimate from analysts polled by Thomson Reuters.

Yahoo blamed the revenue shortfall on a variety of factors, including its search-advertising sharing agreement with Microsoft, which isn't yielding the results it expected; its divestiture of HotJobs; broadband deferred revenue amortization; and certain fee rate reductions.

Perhaps of more concern is the company's acknowledgement that its display ad business didn't perform as well as expected.

Yahoo has been a leader in display advertising since the late 1990s, but lately has faced tough competition from Facebook and Google, both of which are making strong runs in the market.

Display ad revenue, minus partner fees and commissions, grew only 5 percent year on year to US$467 million. Search ad revenue was down 15 percent to US$371 million.

While the display ad business performed as expected in the Asia Pacific and EMEA (Europe, Middle East and Asia) regions, it faltered in the Americas, particularly in the U.S., Yahoo CEO Carol Bartz said during a webcast to discuss the results.

"I'm not happy about our U.S. display performance," Bartz said.

The problem stemmed primarily from a major reorganization of the U.S. display-ad sales team in May, which caused a higher-than-expected turnover in staff, hurting sales in the latter half of the quarter, she said.

Yahoo expects the reorganization to boost display ad sales in the fourth quarter and next year, but the struggles will continue this quarter as new hires ramp up on their jobs, Bartz said.

Yahoo did grow its net income, however, by 11 percent to US$237 million, and its earnings by 18 percent to US$0.18 per share, matching the analysts' consensus estimate.

Bartz had nothing new to report about Alibaba Group's decision to spin off its online payment unit, Alipay. Yahoo continues to negotiate with Alibaba Group to get what it considers proper compensation for the divestiture, which Yahoo has said was carried out without its knowledge.

Alipay was spun off to a Chinese company controlled by Alibaba CEO Jack Ma. Yahoo holds a 43 percent stake in Alibaba Group, worth US$2.32

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