The Sunnyvale-based company said Tuesday it earned US$205.7 million (S$292 million), or 15 cents per share, during 2007's final three months, a 23 per cent drop from net income of US$268.7 million, or 19 cents per share, at the same time in 2006.

Reflecting the gloomy aura hanging over Yahoo, analysts had prepared investors for even worse earnings erosion. The pessimism prompted analysts, on average, to project earnings of 11 cents per share for the period.

Revenue for the period totalled US$1.83 billion, a 8 per cent improvement from US$1.7 billion in 2006.

After subtracting commissions paid to its advertising partner, Yahoo's revenue fell to US$1.4 billion, in line with analyst estimates.

Yahoo has been mulling firing hundreds of workers as part of its long-running effort to snap out of a stock decline during the past two years, but the company's announcement on Tuesday didn't mention job cuts.

Yahoo co-founder Jerry Yang, who returned as chief executive seven months ago, signalled the company has challenges ahead.

'While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009,' Mr Yang said in a statement.

Excluding ad commissions, Yahoo estimated its revenue this year will range from US$5.35 billion to US$5.95 billion. The average analyst estimate stood at US$5.92 billion, according to Thomson Financial.

Yahoo shares plummeted about US$2 to US$18.93, almost 10 per cent, in extended trading Tuesday after finishing the regular session at US$20.81, up 3 cents.

Last year marked the first time Yahoo's earnings have dropped from the previous year since the company lost US$93 million in 2001 during the aftermath of the dot-com bust. That was also the last time that Yahoo fired hundreds of workers.

Unlike in 2001, Yahoo hasn't stopped making money. But the company's 2007 profit fell 12 per cent to US$660 million even though advertisers spent more than ever on the Internet, where Yahoo still draws one of the Web's largest audiences.

The bulk of that additional ad revenue has been pouring into Internet search leader Google Inc, a company that was smaller than Yahoo just three years ago.

Yahoo has been struggling to attract teenagers and young adults who are gravitating to more trendy online hangouts like Facebook.com and News Corp.'s MySpace.com. -- AP