Meanwhile, net income fell 78 percent to $118 million, or $0.08 per share, compared to $537 million, or $0.37 per share, in the first quarter of 2008, , the company said Tuesday.

On a pro forma basis, which excludes certain one-time items, Yahoo had net income of $206 million, or $0.15 per share, down 16 percent and 17 percent, respectively, compared to the first quarter of 2008 but exceeding by seven cents per share analysts' expectation.

As had been rumored, Yahoo also announced it will lay off employees, its third major job-cutting round since early 2008. This time around, Yahoo will let go 5 percent of its staff worldwide. Yahoo ended 2008 with 13,600 employees, so this would mean that about 680 people will be laid off. Yahoo handed out pink slips to about 2,600 employees in two rounds of layoffs last year.