Yahoo boss Terry Semel remains 'excited' about Yahoo's prospects

Yahoo said net income for the first three months of the year fell to $160m (£90m), from $204.6m the previous year.

The firm said new methods for deducting the expenses for its employee stock options had cost it $65m more this year than at the same time in 2005.

Yahoo said that without the changes it would have reported an 18% rise in first quarter earnings.

'Exciting prospects'

Yahoo's latest results - which were released after the close of trade in the US on Tuesday - were broadly in line with analyst expectations.

Shares in the California-based company gained 33 cents to close up $31.30 on the technology-laden Nasdaq market, and rose by a further 5% in out-of-hours trade.

Yahoo said it was continuing to capitalise on the fast-growing online advertising market, offsetting weakness in paid search advertising.

The internet icon's market value has fallen by about 20% so far this year, as the company has battled rival Google for primacy in the key internet search engine market.