Yahoo's fourth-quarter revenue grew, but net income fell as the struggling internet giant tried to put its house in order and improve its ability to compete against Google and other rivals.

Revenue for the period, ended 31 December, came in at $1.832 billion, up 8 per cent compared with 2006's fourth quarter, the company said Tuesday. Subtracting the commission that Yahoo pays to sites in its advertising network, revenue was $1.403 billion, up 14 per cent but missing the $1.406 billion consensus expectation from financial analysts polled by Thomson Financial.

Meanwhile, net income fell to $206 million, or $0.15 per share, from $269 million, or $0.19 per share. On a pro forma basis, which includes one-time items, net income was $280 million, or $0.20 per share, down from $297 million, or $0.21 per share. Analysts expected Yahoo to post earnings per share of $0.11.

As had been rumoured, Yahoo will lay off staffers. About 1,000 employees will be let go in mid-February, and Yahoo will record a related cash charge of between $20 million and $25 million, Chief financial officer Blake Jorgensen said during a conference call to discuss the results.

The details of the staff reduction weren't exactly clear, since Yahoo CEO Jerry Yang characterized the move as a reallocation and realignment of resources, saying that alongside "targeted reductions," Yahoo will make "targeted investments" while reducing "bureaucracy" and "redundancies."

While acknowledging that the company will likely face "headwinds" this year, Yang tried to put a positive spin on the results, saying that the company is starting to see the fruits of a multiyear turnaround plan launched several months ago.

Among the company's main priorities are to grow its audience by positioning itself as people's preferred internet "starting point" and becoming a "must-buy" provider of online advertising.

The online advertising market is still young and growing, which gives Yahoo a real opportunity to increase its share of the market by capitalizing on opportunities, Yang said.

To grow its audience Yahoo will continue to invest in strengthening key web properties, such as its home page, My Yahoo, search, Yahoo Mail and its mobile offerings, to make Yahoo the center of people's internet activities. "We feel a real sense of urgency to address the opportunities we face," Yang said.

At the same time, Yahoo has been phasing out a number of sites and services that it doesn't believe fit into this scheme, so aggregate metrics for Yahoo properties may not reflect the success of this strategy, especially when looking at unique monthly visitors, said Yahoo President Sue Decker.

Instead, to properly evaluate whether Yahoo is succeeding in growing its traffic, Decker argued that one needs to consider visits to Yahoo's key properties.

Once seen as a clear leader on the internet, Yahoo has reacted slowly in recent years to technology and business shifts, letting small and large competitors elbow it out of the hottest markets. Starting around 2003, Google ran away with the search and advertising market, and in later years Yahoo failed to establish leading services in online video, social networking and blogging.

Along the way, its sales and profits have disappointed for the past two years, leading to several management shakeups in late 2006 and 2007.

For the full fiscal year, Yahoo had revenue of $6.969 billion, an 8 per cent increase, and net income of $660 million, or $0.47 per share, compared to $751 million, or $0.52 per share, in 2006.

Yahoo expects first-quarter revenue to be in the range of $1.680 billion and $1.840 billion, and between $7.200 billion and $8.000 billion for the full fiscal 2008 year.

Separately Tuesday, Yahoo announced a multiyear extension to its partnership with AT&T that offers both companies "significant" advertising-based revenue opportunities by offering joint services to consumers. Yahoo and AT&T's original partnership dates from 2001.

Yahoo also announced the appointment of Aristotle Balogh as chief technology officer. Balogh comes to Yahoo from Verisign, where he was also CTO.