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Yahoo cuts Q4 guidance after earnings miss

Yahoo on Tuesday posted earnings and sales that missed Wall Street's estimates and trimmed its revenue guidance.

The Internet firm reported third-quarter earnings of 15 cents per share on $1.23 billion in revenue. Analysts expected Yahoo to post earnings of 17 cents per share on gross revenue of $1.26 billion, according to Thomson Reuters estimates.

Yahoo also announced Tuesday a search advertising deal with Google. The segment leader, Google, will provide Yahoo with search ads, while Yahoo can select which search queries to send to Google.

In a conference call after earnings, CEO Marissa Mayer said the agreement would bolster Yahoo's search business, noting she is "optimistic" about its growth prospects.

The Yahoo logo outside the Yahoo Sunnyvale campus in Sunnyvale, California.
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The Yahoo logo outside the Yahoo Sunnyvale campus in Sunnyvale, California.

Yahoo's third-quarter sales came in below the Street's lowest projection, rising 7 percent from the previous year. Shares were slightly lower in choppy after-hours trading.

Mayer touted growth in mobile and social segments, which have lagged behind competitors like Facebook. She said Yahoo aims to spin off its stake in Chinese e-commerce company Alibaba by the fourth quarter, but it could slide to January.

"We continue to strive to complete the spin as quickly as we can," she said in a separate statement.

Yahoo is transitioning around the goals of Mayer, who spearheaded acquisitions like fashion site Polyvore and blogging site Tumblr. The company has suffered setbacks, including reportedly shedding key executives such as Chief Development Officer Jacqueline Reses. Yahoo has also wrestled with the IRS over the tax requirements of spinning off its Alibaba stake.

Read MoreWhy Wall Street isn't giving up on Yahoo yet

"We've all heard about them being turned down, or just pushed aside with the IRS," Stuart Frankel's Steve Grasso told CNBC on Tuesday, referring to Yahoo's stake in Alibaba. "But maybe there is some upside risk at this point in the game."

The firm cut its fourth-quarter revenue outlook to a range of $1.16 billion to $1.2 billion. Analysts expected $1.33 billion in sales, according to StreetAccount.

Gross search revenue rose 2 percent from last year to $870 million in the third quarter. GAAP display revenue climbed 14 percent year over year to $509 million.

But traffic acquisition costs soared, more than quadrupling to $223 million from $54 million a year ago.

"They've really got to cut costs, and they've got to focus on what Yahoo's good at. The two crown jewels that Yahoo still has today are finance and sports, and they're woefully underinvested in," Eric Jackson, a Yahoo shareholder and founder of Ironfire Capital, told CNBC on Tuesday.

Yahoo shares were down 16 percent over the past year as of Tuesday, while the three major averages were up more than 5 percent.