The company said net income for the quarter ended Dec. 31 fell to $206 million, or 15 cents a share, from $269 million, or 19 cents a share, for the same period a year ago. Contributing to the drop were stock-based compensation and other expenses. Operating income for the quarter plunged 38% to $191 million from $308 million a year ago.

Revenues rose 8% to $1.8 billion from $1.7 billion a year ago. Marketing services, which include online advertising sales, rose by 7% to $1.6 billion from $1.5 billion. Revenues from Yahoo's owned-and-operated sites rose by 23%, while sales on affiliate Web sites increased by 13%.

During a conference call with financial analysts, Yahoo chief executive Jerry Yang announced there would be a "realignment" of 1,000 jobs at the company, which had 14,300 employees as of the end of last year. As a result, the company expected to incur a $20 million to $25 million charge. Some employees would be shifted to other jobs, and the company planned to add people in areas deemed as priorities.

Yang told analysts the company was spending money to change its advertising platform and operations, and expected to exit 2008 stronger and more competitive, and return to higher levels of operating cash flow growth next year. "We're not tinkering around the edges," Yang said. "We're making significant and game-changing investments in Yahoo's future."

Yang said the company has made progress and was in position to capture a significant piece of the growing ad market. Yahoo, for example, saw 20% growth year over year in display advertising, which accounts for 40% of the company's revenue.

Growth in online advertising was expected to continue this year, although Yang had said in an earlier statement that the company expected to experience some "headwinds" in the market. A weakening U.S. and global economy could have an impact on the overall advertising market.

The highest growth in ad revenue was expected in the second half of the year when Yahoo rolls out major technical changes it has made in its platform that would increase indexing speeds for search, and improve ad distribution, executives said. Leading Yahoo's technology effort would be Aristotle "Ari" Balogh, 43, who was named Tuesday to the post of chief technology officer. Balogh had been CTO of security company VeriSign.

In its 2008 forecast, Yahoo expected revenues for $5.35 billion to $5.95 billion. The outlook disappointed Wall Street, and Yahoo shares fell more than 10% in after hours trading.

Yahoo also announced that it had renegotiated its contract with AT&T, which was set to expire this spring. The two companies would continue selling Internet access together and partner on content offered through the telephone company's TV service and Web portal.

The Internet pioneer has yet to show any progress against rival Google, which continues to dominate search on the Web and related advertising. Yahoo has long been a distant No. 2 in search, with Microsoft consistently in third place. Many analysts expect Google to continue to dominate the market this year.

Yahoo, however, remains strong in terms of attracting visitors. The portal in December had the largest audience with 136,634 visitors, according to ComScore. Google was second with 132,954, and Microsoft sites third with 120,034.

Nevertheless, Yahoo continues to struggle in the lucrative market for search-related advertising. The company's catch-up mode with Google and anemic stock prices led to chief executive Terry Semel stepping down last June.