Yahoo's shares have soared in the past year

Yahoo said the rise came primarily from advertising revenue.

But the figures failed to impress the markets, where recent share price gains had led investors to expect an even better performance.

Yahoo stock dropped 12% in after-hours trading in New York as the firm's sales outlook for the current quarter was judged to be disappointing.

"After crushing numbers (in the previous six months) last year, everyone was expecting that the second quarter was going to be stellar," said Martin Pyykkonen, an analyst at Janco Partners. "They didn't blow anything away."

Overseas

Yahoo is now looking beyond US shores for growth in its revenue.

We wish them well... The more competitors, the better Terry Semel Yahoo chief executive Check Yahoo's share price

Today, international business accounts for 20% of Yahoo's revenue, and is set to increase sharply.

Yahoo's plan is to offer online services that have a solid track record in the US to other countries around the world, a strategy which has worked at Yahoo Japan.

"There are certainly very substantial opportunities for Yahoo to accelerate its overseas revenue growth to pace faster than what they are seeing in the US," said David Garrity, technology analyst at Caris and Co.

Competition for Yahoo in the search engine sector is hotting up, not least because Microsoft - which currently uses Yahoo's technology to power its own internet searches - may go it alone next year.

"We wish them well," chief executive Terry Semel told analysts. "The more competitors, the better."

There is also the continuing threat from Google, perhaps the most iconic name in the search engine world, even though Yahoo owns 5% of the company.