The company is now forecasting revenue of $4.45 billion to $4.55 billion this year, down from $4.5 billion to $4.6 billion previously. Yahoo also reported that second-quarter net revenue was down slightly at $1.071 billion, though it posted adjusted profit that was ahead of Wall Street targets.
Yahoo, in a novel post-results livestream akin to a TV newscast with Mayer and CFO Ken Goldman playing news anchors, acknowledged the pressure on prices but stressed that Yahoo was developing new ad formats and technology that would reverse the trend.
"We can do better in display, and this is going to be a clear focus for the business," a relaxed Mayer said onscreen, referring to Yahoo's display advertising business.
On Tuesday, the company reported a 12 percent slide in price-per-ad in the second quarter from a year earlier, outstripping the first quarter's 2 percent decline.
Analysts said advertising exchanges, which help get ads on spots on various Internet websites, are putting pressure on prices, especially for premium advertising.
"If there is some kind of genius happening here, it needs to start materializing later this year, and taking your guidance down is not a step in that direction," BGC analyst Colin Gillis said. "We have had eight quarters of decline for the number of display ads sold. And the price per ad dropped significantly this quarter - that's huge."
"This is just the beginning of the trend, of the drop in the price per ad. You still have a pretty big gap between what you can get direct and what you can get selling on an exchange," Gillis said.
The stock rebounded after an initial 2 percent to 3 percent slide, trading 1.1 percent higher at $27.19 after the company disclosed better-than-expected results from China's Alibaba, the Internet giant of which Yahoo owns 24 percent.
OPEN SESAME
Shares of Yahoo have gained about 70 percent since Mayer took over a year ago, in large part due to share buybacks that stem from its slice of Alibaba, which is preparing to go public in what could be the largest debut from a Chinese Internet company.
On Tuesday, Yahoo clarified that it planned to repurchase an additional $1.9 billion of its stock, part of a previously announced $5 billion buyback plan. During the past several quarters, Yahoo has repurchased $3.65 billion of its shares using proceeds from the sale of part of its stake in Alibaba Group.
Yahoo also shared details of Alibaba's first-quarter performance. The company founded by English schoolteacher Jack Ma increased revenue 71 percent to $1.4 billion in the quarter and almost tripled net income, to $669 million.
As for Yahoo itself, net revenue, which excludes fees paid to partner websites, was $1.071 billion in the second quarter, within its forecast of $1.06 billion to $1.09 billion, but below the $1.081 billion it posted in the second quarter of 2012.
Revenue from its display advertising business in the second quarter fell 11 percent from the year before on an adjusted basis, while search advertising revenue was up 5 percent on an adjusted basis.
Yahoo said it earned 35 cents per share, excluding certain items in the second quarter, compared with 30 cents in the year-ago period. Analysts polled by Thomson Financial I/B/E/S were looking for 35 cents in adjusted earnings per share.
"They had guided to basically expect some sort of growth in the second half of the year," said Sameet Sinha, analyst at B. Riley & Co, on the full year net-revenue guidance. "Now that thing is coming down, and you never know, you might end up the year just being flat in terms of revenue."
(Reporting by Alexei Oreskovic; Editing by Gunna Dickson and Prudence Crowther)