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Tickers in this Article: YHOO, GOOG, NOK, SNE, BIDU, SOHU
Yahoo! (Nasdaq:YHOO) second-quarter earnings increased, but the company registered slightly lower core revenue. The earnings increased due mainly to cost-cutting, while sales were off on the all-important advertising revenues when traffic acquisition costs (TAC) are excluded. The market reacted negatively to the lack of top line improvement.

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Unpopular Results
Yahoo earned 15 cents per share for the quarter, up from 10 cents last year's second quarter. Revenue with TAC costs subtracted was $1.13 billion, nearly the same as the $1.136 billion in Q2 last year. The Street expected brighter things from Yahoo, especially after a promising first quarter. Investors looked for the turnaround from CEO Carol Bartz to take hold. Margin improvement and cost cutting instead of robust advertising sales increases was not what the market was looking for.

Underlying Concerns
The failure of Yahoo to post improvements in its core internet advertising numbers is at the heart of investor concerns. The dismal paid search numbers, despite a globally expanding internet, prompted one commentator harshly to question Yahoo's "relevance" on the internet. Analysts were more divided on Yahoo, with some maintaining its long-term fundamental story remains in place, while others question whether the company has an effective strategy to counter its diminishing search engine presence.

Others in Search
Search and internet giant Google (Nasdaq:GOOG) reported a strong quarter recently, yet the stock was taken down. What happened to Yahoo is not the same. Google has a dominant position in the industry and generates tons of cash along with continued earnings growth. It is further spreading its dominance with its widening array of products and services. Yahoo is still waiting for its new partnerships with Nokia (NYSE:NOK) and Sony (NYSE:SNE) to pay off.

The globalized nature of the internet also finds non-U.S. internet search companies that are executing their business far better than Yahoo. China's "other Google," called Baidu (Nasdaq:BIDU), is growing at a tremendous rate. Its earnings projections point to a 57% increase this year. The stock is expensive, so a cheaper player but a good one in the still-booming Chinese internet economy is Sohu (Nasdaq:SOHU). (To learn more, Investing In China.)

The Bottom Line
The market hates uncertainty and unclarity. These are two things Yahoo's business vibe is giving off right now. Its lack of robust advertising growth, despite the weak economy, still points to a lack of a clear understandable direction for investors right now. The internet economy is a space of tremendous opportunity, as the results of Google and others are the proof. Yahoo stock has been driven down to near its 52-week lows, but that doesn't make it a value play here. We need to see a better fundamental business.

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