Implementing fully the search deal could take about two years. In the meantime, Microsoft will reimburse Yahoo for transition and operating costs. Yahoo expects net reimbursements from Microsoft of between $75 million and $85 million per quarter for the remainder of 2010.
A key motivation for Yahoo to enter into the search deal with Microsoft was to reduce its search-related costs. In addition, the companies believe they will be able to offer a more attractive option to advertisers together than individually, and thus be a more credible competitor to Google, which broadly dominates search usage and advertising globally.
Yahoo ended the quarter with free cash flow of $64 million, down 70 percent from 2009's first quarter, and with cash, cash equivalents, and investments in marketable debt securities of $4.24 billion, down $274 million from 2009's fourth quarter.
Yahoo expects revenue in the second quarter of 2010 to be between $1.60 billion and $1.68 billion. Commissions and fees paid to partners should be between $475 million and $495 million.
Morse said key signs point to an improvement in Yahoo's financial performance, including the first quarter's revenue increase after the company's revenue fell year-on-year all four quarters of 2009.
"Our underlying business performance is clearly improving. Our revenue is returning to year-over-year growth, led by display. We're transforming our cost structure to support our growth and profitability objectives, and our earnings metrics are showing substantial gains versus last year," Morse said.