Fuelled by growth in its Internet advertising business and paid services, Yahoo Inc. on Wednesday reported its largest revenue producing quarter in company history.

The company reported net income of US$50.8 million, or $0.08 per diluted share, on net revenue of $321.4 million for quarter ended June 30.

Net revenue was up 42 per cent over the $225.8 million it reported a year ago. Net income was also up from last year's $21.4 million, or $0.03 per share.

Yahoo's results were in line with expectations of analysts polled by Thomson First Call, who had predicted earnings of $0.08 per share on revenues of $315.1 million.

The good results this quarter were a result of more balanced growth in advertising and sponsored search revenue, and the conversion of consumers and small businesses to fee-based services from free ones, the company said in a statement.

"More marketers are recognizing that the Internet is a great complement rather than a replacement for traditional forms of advertising such as televisions," Chief Executive Officer Terry Semel said in a conference call.

Vertical markets Growth in this area was also driven by industry standards like the Universal Ad Package sizes now promoted by the Interactive Advertising Bureau, Semel said.

Programs aimed at enticing advertisers in specific vertical markets like the automotive, retail and entertainment industries are also beginning to bear fruit, Semel said. The number of motion pictures promoted by Yahoo in the quarter, for example, jumped from 13 a year ago to 53 in 2003, he said.

Revenue from Yahoo's marketing services, which include sponsored search and advertising via Yahoo's global marketing services, accounted for $219.2 million, the lion's share of Yahoo's revenue.

Fee-based services, including premium services like Yahoo Personals and SBC Yahoo DSL (Digital Subscriber Line) accounted for $69.9 million in revenue, a 43 per cent increase over 2002.

The company reported that 3.5 million users now pay for Yahoo services, making it the most rapidly growing group within Yahoo. The total global audience reached by Yahoo is now 236 million users - up from 196 million a year ago, said Semel.

Yahoo is now less certain about its full-year 2003 revenue estimate, widening the range to between $1.26 billion and $1.31 billion, according to executives on the call. It had earlier estimated full-year earnings at $1.28 billion.

Following Yahoo's earnings report, shares had dropped $2.27 from their Nasdaq close of $35.29 on Wednesday evening, trading at $33.02 on the Island-ECN Inc. after-hours stock exchange.