Yahoo Inc said revenue could grow for the first time in six quarters in the first three months of 2010, noting that demand for premium display advertising had improved significantly.

The Internet company, whose shares rose 3.2 percent in after-hours trading on Tuesday, gave the forecast after posting fourth-quarter results that were broadly in line with Wall Street expectations.

For Yahoo, they're going to rise with the tide if the tide rises in terms of spending online. I think Q4 was probably a decent quarter for them, said Laxmi Poruri, analyst at Primary Global Research.

The larger advertisers are starting to spend more money on display, and then also their time horizon for planning has grown, which is a good thing.

Yahoo's fourth-quarter results on Tuesday marked just over a year since CEO Carol Bartz took the helm. The former Autodesk chief has led a turnaround effort that included shedding non-core assets, laying off staff and striking a landmark search deal with Microsoft Corp .

For us, 2010 is about acquisitions and investments to make Yahoo even stronger, Bartz said on a conference call.

She cited social media, mobile Internet and fast-growing international markets like India and Brazil as key areas of focus for Yahoo going forward.

While Yahoo's network of websites are among the Internet's most popular destinations, the company is facing increasing competition from the new breed of social networking sites like Facebook and Twitter.

It has also seen its share of the U.S. Internet search market erode in past months as Google Inc solidifies its top ranking and Microsoft gradually narrows the gap with Yahoo for the No. 2 spot.

Yahoo said it expects its deal to let Microsoft provide its back-end search technology to remain on track for regulatory approval early this year. And the company pointed to recent improvements to its search advertising technology as helping it boost revenue-per-search about 8 percent sequentially in the fourth quarter.

But search revenue on Yahoo sites grew only 4 percent from the third quarter, which RBC Capital Markets analyst Ross Sandler said was below seasonal norms, as well as lagging the 12 percent growth logged by Google during the period.

Yahoo's performance in display advertising, which grew 26 percent sequentially, was the clear stand-out for the fourth quarter, said Sandler.

HINTS OF TURNAROUND

Yahoo said that several of its premium online properties sold out during the quarter, including its home page.

We're seeing really strong recovery right there, said Sandler.

Yahoo said revenue in the current quarter would range from $1.575 billion to $1.675 billion. That compared with $1.58 billion in the first quarter of 2009.

Yahoo Finance Chief Tim Morse pegged traffic acquisition costs in the first quarter at 28 percent to 29 percent of revenue, which would suggest net revenue of $1.12 billion to $1.21 billion. Analysts polled by Thomson Reuters I/B/E/S were looking for net revenue of $1.16 billion.

While Yahoo did not provide an outlook for the full year, Morse said the company expected higher revenue and profit margins in 2010.

A recovery in advertising is definitely underway, Morse told Reuters in an interview. We feel good about where the business is heading and our growth prospects for the year.

Sunnyvale, California-based Yahoo reported net income of $153 million in the fourth quarter, or 11 cents a share, matching the average analyst per-share forecast, according to Thomson Reuters I/B/E/S.

In the year-ago period, Yahoo posted a net loss of $303 million, or 22 cents per share, after more than $500 million of write-downs and restructuring charges.

Fourth-quarter revenue fell 4 percent from a year earlier to $1.73 billion.

Excluding traffic acquisition costs, Yahoo said revenue was $1.26 billion, a hair above analysts' average expectation of $1.23 billion, according to Thomson Reuters I/B/E/S.

Shares of Yahoo rose to $16.50 in after-hours trading, from their Nasdaq close of $15.99.

(Reporting by Alexei Oreskovic; Additional reporting by Gabriel Madway and Tiffany Wu; Editing by Ted Kerr and Richard Chang)

India Yahoo Microsoft Google