Yahoo posted a 61 per cent drop in quarterly profit, weighed down by option expenses, but the stock rose on news that a new Web search advertising system was nearly complete.
Shares in the Internet media company rose nearly 6 percent to $28.54 in extended trading from its Nasdaq close at $26.96, after officials said Yahoo was putting the final touches on a highly anticipated system for selling Web ads, dubbed Panama.
The comments helped overcome investor concerns over the company's conservative first-quarter and full-year forecasts.
"We have successfully transitioned the large majority of our revenue to the new search system known as Project Panama," chief executive Terry Semel said on a conference call with analysts.
"We believe this will deliver more relevant text ads to users, which in turn should create greater volume of high-quality leads," he said of the coveted sales leads that advertisers seek by placing ads through Yahoo.
Yahoo will introduce its new Web search advertising system in the United States as of February 5th, about a month earlier than expected by Wall Street analysts, and it is on track to bring it to international clients in the second quarter.
Wall Street has been waiting for signs of Panama's progress, as its introduction is a key strategy for Yahoo to compete with much-faster-growing rival Google Yahoo said it expected first-quarter net revenue, excluding the costs it paid to affiliated advertisers, of $1.12 billion to $1.23 billion.
That is below or within the lower half of a range of $1.18 billion to $1.38 billion forecast by analysts, partly due to the transition to the new search ad system.