Revenue in the current period, excluding the portion passed on to partners, will be $1.07 billion to $1.10 billion, Yahoo said late Monday in a statement. That was shy of the $1.12 billion average predicted by analysts. Sales on that basis in 2013 will be $4.5 billion to $4.6 billion, compared with analysts’ average $4.59 billion estimate.

The disappointing forecasts underscore the challenge Chief Executive Officer Marissa Mayer faces in display advertising, an area where Yahoo lags behind Google Inc. and Facebook Inc. They may also indicate that management is seeking to give itself some breathing room while working to make the recovery take hold, said Brian Wieser, an analyst at Pivotal Research Group LLC.

“Management provided conservative expectations for the period ahead, leaving the primary guessing game for the next quarter about the degree to which expectations have been set low or that the company is focused on internal investments, or both.” said Wieser, who rates Yahoo shares hold.

Fourth-quarter profit, excluding some items, was 32 cents a share. Sales, excluding revenue passed to partner sites, rose 4 percent to $1.22 billion. Analysts on average had projected profit of 28 cents on revenue of $1.21 billion, according to data compiled by Bloomberg.

Adjusted profit excludes costs associated with closing Yahoo’s Korea business, as well as restructuring charges.

Yahoo shares fell 3 percent to $19.70 at Tuesday's close in New York, for the biggest decline since Aug. 10. The stock has gained 25 percent over the past 12 months.

Mayer’s Strategy

Monday’s conference call with analysts was the most substantial discussion of Mayer’s strategy since she was hired in July, and may help convince investors that renewed focus on product innovation will eventually drive Yahoo’s sales growth, said Sameet Sinha, a San Francisco-based analyst at B Riley & Co., who rates Yahoo shares a buy.

“Our fourth quarter benefited from user interface improvements on mobile, very strong sales execution as well as favorable macroeconomic and seasonal trends,” Mayer said on the call.

Fourth-quarter net income attributable to Yahoo fell 7.9 percent to $272.3 million, or 23 cents a share, Yahoo said.

Revamping Sites

Sales of display ads fell 3 percent to $591 million. The company is working to improve in display, a market that EMarketer Inc. predicts will increase to $17.7 billion this year, by investing more in tools that deliver ad promotions to consumers based on their browsing history, said Kevin Stadtler, president of Stadtler Capital Management LLC.

“They are really well-positioned because they can provide real-time data to advertisers, who can then pinpoint ads to people who are interested in their products,” Stadtler, who manages $7.2 million in assets, including Yahoo shares, said in an interview. “That’s a really big deal.”

Mayer’s turnaround will emphasize improvements to 12 top Yahoo sites designed to get users interacting more, and for longer periods of time, she said on the call. In the same way that recent updates to Flickr got users uploading 25 percent more photos, and an overhaul of Yahoo Mail resulted in a higher portion of ads being clicked, the company hopes to refresh sites such as Yahoo Finance and Yahoo News, Mayer said.

‘Social Context’

To help its push for product improvements, Yahoo hired 120 new employees with computer science degrees in the fourth quarter, Mayer said. She also brought on Sandy Gould, a former recruiting executive at Walt Disney Co., to lead talent acquisition and development.

Yahoo is working on technology that will personalize content from the Web and feed it to people on their mobile devices, Mayer said in an interview with Bloomberg News last week. The company had more than 200 million unique mobile users in 2012, she said on the conference call.

User data will make it possible to create a so-called interest graph to show connections among people and create a personalized Internet experience, she said.

“With the Web becoming so vast, there’s so much content and there’s so much social context, and now with mobile, there’s so much location context and activity context,” Mayer said. “How do you pull all that together?”

Since Mayer arrived, Yahoo has continued to cede share in its core business of display advertising. Yahoo’s portion of the U.S. market was 9.3 percent last year, down from 11 percent in 2011, according to researcher EMarketer Inc. Google’s stake rose about 2 percentage points to 15 percent, while Facebook commanded 14 percent.

App Void

Google will retain its lead in the U.S. display-ad market this year with an 18 percent share, while Facebook will have 15 percent and Yahoo will slip to 8 percent, EMarketer estimates.

Yahoo’s fortunes are waning in tandem with the personal- computer industry. Yahoo, once the dominant choice for e-mail and search tools when consumers surfed the Web on desktop PCs, has failed to adapt to a new era where many users rely more on smartphones and tablets.

Google and Facebook have been more nimble at catering to consumers’ appetite for mobile apps that work seamlessly with Web-based services, said Colin Gillis, an analyst at BGC Partners LP in New York.

“If I’m using Yahoo Finance for my stock quotes, don’t make me go find a new app to fill that void on my phone,” Gillis said. “Because once you do that, you’ve lost a user.”