Amid the intense pressure from Microsoft regarding the acquisition deal, Yahoo faced yet another set back, this time in form of reduced profits for the second quarter of this year. World’s second most used search engine may hit the panic button soon once it realizes that its internet search business could fall drastically due to the increasing competition on the search engine front.

If Microsoft was creating hurdles for the US-based search company, the current downturn in the American economy added fuel to the fire, raising concerns that co-founder of Yahoo, Jerry Yang, may be unable to deliver a promise to augment the firm’s share price.

It was just a couple of months back when the management of Yahoo rebuffed Microsoft’s offer of $33 per share. Since then, the shares of Yahoo have been falling on a regular basis, causing concerns for the shareholders.

Yahoo admitted that its net profits declined by as much as 19 percent to $131 million during the second quarter, while its total revenue shot up 6 percent to $1.79 billion. The net revenue improved 8 percent to $1.35 billion.

Mr. Yang held ‘difficult economic environment’ and increased costs responsible for the drop in earnings.

In an attempt to spearhead the company’s revival, laying off jobs and initiating a new business strategy, Mr. Yang took control of the company as the chief executive last year. However, investors today are concerned regarding Yahoo’s failure to knock down Google in the fight to secure internet advertising contracts. Predictions of the online advertising market reckon it to be worth $80 billion by the year 2010.

Mr. Yang instilled confidence by saying that the internet giant is executing its strategy, and believes that it is well positioned for maximizing stockholder value and long-term growth. He also said that Yahoo saw benefits in Q2 from numerous strategic initiatives that the company has been delivering against, which included the announcement of several important partnerships as well as roll out of innovations in the search feature.