Yahoo! Inc. recorded a better-than-expected profit over the past three months. The company which owns the second most popular search engine said it lost $303.4 million, or 22 cents a share, a significant change from the $205.7 million, or 15 cents, profit recorded last year.

The Sunnyvale, Calif.-based company said its sales before the costs of acquiring traffic from other Web sites dropped 2% to $1.38 billion during the fourth quarter, down 2 percent from the $1.4 billion of last year. Net profit for the full year was $424m, down 35.7% from 2007.

However, despite the losses, the financial results exceeded the analysts’ forecasts and the company’s CEO, Carol Bartz, gave her word to do whatever it takes to bring Yahoo Inc’s finances back to order. In a conference call with analysts and reporters, Ms Bartz said she did not come to Yahoo to sell the company and declined to comment on allegations that Yahoo executives had meetings with their Microsoft counterparts.

Ms Bartz took over the helm of the company in November from Jerry Yang who angered investors, including billionaire investor Carl Icahn, after he refused a $47.5 billion takeover offer from Microsoft last year.

Yahoo’s negative financial results are caused by a mix of factors. First and most important of all, the demand on the search advertising market has decreased due to the recession which affected advertising budget of numerous companies. Then, Yahoo lost numerous Internet search customers to Google, the Goliath of the market. 

Yahoo shares climbed 17 cents, or 1.5 percent, yesterday to close at $11.34. The company’s shares are 10% lower than a year ago and bellow the $33 a share price at which Microsoft offered to purchase Yahoo.

The near future doesn’t look very bright either. The company issued a gloomy outlook for the first quarter. Yahoo Inc estimated its sales will fall to $1.53 billion to $1.73 billion, from $1.82 billion a year earlier, a decline of 5% to 16%. The company’s forecast on earnings before interest, taxes, and depreciation are also bellow the analysts’ predictions. Yahoo Inc expects to the figure to be between $365 million to $415 million, far bellow the $475 million analysts had forecast.

Yahoo depends a lot on display ads and during tough economic times such as the current recession, most companies spend far less money on advertising. On the other hand, Google relies more on search advertising and it leads the market. The Web search giant had 63.5 percent of U.S. searches in December, far more than Yahoo’s market share of 20.5 percent.