Yahoo reported earnings that exceeded Wall Street expectations, while sales met forecasts. But shares took a sharp turn lower in extended-hours trading following the company's first-quarter outlook.
Yahoo posted earnings of 46 cents a share, excluding one-time items, topping estimates for 38 cents a share. The company posted revenue of $1.20 billion, ex-tac, meeting forecasts.
Meanwhile, Yahoo said it expects current-quarter non-GAAP net income of between $130 million and $170 million, well below forecasts. In addition, the company sees current-quarter sales of between $1.06 billion $1.1 billion ex-tac, versus expectations for $1.08 billion.
"Normally you get better pricing in Q4," said BGC Partners analyst Colin Gillis. "The core business is shrinking."
Shares were down nearly 5 percent in extended-hours trading after climbing more than 4 percent during the regular session Tuesday. What is Yahoo stock doing now? (Click here to get the latest quotes.)
(Read more: Yahoo's Mayer debuts new products, aims for mobile)
"I'm encouraged by Yahoo's performance in the fourth quarter and 2013 overall. We saw continued stability in the business, and our investments allowed us to bring beautiful products to our users and establish a strong foundation for revenue growth," said CEO Marissa Mayer in a press statement. "In the fourth quarter, we launched the new Yahoo Mail, Yahoo Finance, and our new Flickr photo books, while quickening our pace of experimentation. We are extremely heartened by the year-over-year traffic increase we experienced in 2013, an early sign of return on our investments and the acquisitions we've made."
The quarterly results also included some of Alibaba's financial results from the third quarter because Yahoo owns about 24 percent of the Chinese company.
Alibaba's revenue increased 51 percent year-over-year to $1.776 billion. While still robust, that growth rate was slower than the 61 percent clip that Alibaba delivered in the second quarter.
Many investors are interested in the performance of Alibaba, which is expected to have an initial public offering in the future.
Since Marissa Mayer took over as CEO in July 2012, shares of the Internet company have spiked more than 140 percent, versus a 41 percent gain in the Nasdaq.
(Read more: Who needs Tumblr? Yahoo growing even without it)
—By CNBC's JeeYeon Park. Follow her on Twitter @JeeYeonParkCNBC Reuters contributed to this report.