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Higher costs to attract eyeballs weigh on Yahoo forecast

A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva, in this file picture taken December 12, 2012. REUTERS/Denis Balibouse

By Abhirup Roy and Kshitiz Goliya

(Reuters) - Yahoo Inc (YHOO.O) forecast lower-than-expected revenue for the current quarter as it struggles to revive its core online advertising business and spends more to attract users to its websites.

Shares of Yahoo were marginally down at $39.34 in after-market trading.

Yahoo has been developing content for its mobile platform to drive user engagement and ad sales as its core online advertising business struggles in the face of stiff competition from Google Inc (GOOGL.O) and Facebook Inc (FB.O).

Traffic acquisition costs (TAC), the amount Yahoo spends to attract users to Yahoo websites, rose to $200.2 million in the second quarter ended June 30, from $43.8 million a year earlier.

Total revenue, after deducting fees paid to partner websites, was flat at $1.04 billion.

Chief Financial Officer Ken Goldman said the company expects TAC to grow for the next few quarters.

"Their core business has been struggling and they've done relatively little to fix it and you could argue that there is not much that they can do," Pivotal Research Group analyst Brian Wieser told Reuters.

"Right now it's all about Alibaba and Yahoo Japan and whatever your expectations are around the spins," Wieser said.

Yahoo plans to spin off its 15 percent stake in Alibaba (BABA.N) into a public company, Aabaco Holdings, which will also include Yahoo Small Business that provides domain names and local marketing. Yahoo's Alibaba stake is valued at about $31 billion, based on the Chinese company's share price on Monday.

Yahoo said in April it hired advisers to determine the "most promising opportunities" for its stake in Yahoo Japan <4689.T>.

On Tuesday, Yahoo said it expected third-quarter revenue of $1.00 billion–$1.04 billion, below the average analyst estimate of $1.07 billion, according to Thomson Reuters I/B/E/S.

Revenue from Yahoo's emerging businesses, which Chief Executive Marrisa Mayer calls Mavens - referring to ads from mobile, video, native and social - rose 14.7 percent in the second quarter.

The Mavens portfolio includes BrightRoll, mobile app network Flurry, mobile ad buying platform Yahoo Gemini and blogging site Tumblr.

"We continue to explore innovative yet thoughtful monetization solutions on Tumblr," CEO Mayer said.

Search revenue rose 22 percent with a 4 percent rise in price-per-click, while revenue from display ads increased 15 percent in the second quarter with price per ad up 10 percent.

Excluding items, the company earned 16 cents per share, missing analysts' average estimate of 18 cents per share.

(Editing by Simon Jennings and Maju Samuel)