Yahoo missed Wall Street's revenue and profit forecasts as slight growth in its online advertising businesses was outweighed by higher payments to partners and websites which send readers to Yahoo.
But its shares rose 1.4% in extended trading after its CEO said the company had hired advisers to determine the "most promising opportunities" for its stake in Yahoo Japan.
Investors have been urging Marissa Mayer to cash in the stake, after Yahoo announced plans to spin off its position in Chinese internet retailer Alibaba Group Holding.
The moves follow unsuccessful efforts by Mayer to revive meaningful revenue growth with a string of acquisitions and product revamps.
For the first quarter, Yahoo said display advertising revenue rose 2.3% to $463.7m, accounting for roughly 40% of its total revenue. Search business revenue was up 19.5% year-on-year to $531.7m.
Yahoo said its recent deal to become the default search engine on Mozilla's popular Firefox browser boosted search volume.
But the cost of the deal, which Yahoo did not disclose, contributed to a sharp $137m rise in traffic acquisition costs.
Both display and search revenue fell after factoring in those costs.
Overall revenue growth has stalled in recent years as Yahoo's once-popular web portal and email service have lagged those of rivals such as Google and Facebook.
Net income attributable to Yahoo fell to $21.2m, or two cents per share, for the quarter ended March 31, from $311.6m, or 29 cents per share, a year earlier.
Revenue, after deducting fees paid to partner websites, fell to $1.04 billion from $1.09 billion.
Analysts on average had expected a profit of 18 cents per share on revenue of $1.06 billion, according to Thomson Reuters.
The company plans to spin off its 15% stake in China's Alibaba Group Holding, responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.
