Although the decline is substantial, mostly due to struggling ad revenue in a weak economy, Yahoo!'s profit earnings outperformed analysts predictions with gains of 8% over Q2 2008, to $141m or $0.10 a share, compared to $0.08 a share last year.
The profit growth can be attributed to large cost cutting measures taken by the company since chief executive officer Carol Bartz took over the company in January from Jerry Yang.
Yahoo!'s operating costs dropped 17% year on year to $101m. Cash flow from operating activities for the second quarter of 2009 was $342m, a 20% decrease compared to $426m for the same period of 2008.
Despite this, Yahoo!'s search and display products were rocked by the recession, posting a 15% and 14% decline respectively.
The decline meant that Yahoo!'s marketing services revenues from its owned and operated sites were $858m in Q2, a 16% decrease compared to $1bn for the same period of 2008.
Marketing services revenues from its affiliate sites were $520m for the three months leading up to June 30, a 9% decrease compared to $571m for the same time last year.
Yahoo! said the decrease was driven primarily by a shift to lower yielding inventory.
Bartz said she was pleased with the quarterly figures, noting that Yahoo!'s new homepage -- launched this week -- is an example of the company's new direction and innovation, calling the site "the most compelling advertising proposition in the industry".
But Yahoo!'s low search earnings will only fuel speculation that the company is close to wrapping up a search advertising partnership with Microsoft.
As of Monday, the long-rumoured search deal was seen to be "imminent", but no confirmation has come as of yet. During an earnings conference call yesterday, Bartz commended Microsoft for its newest search product, Bing.
The two companies have a common enemy in Google, which last week posted revenue gains of 3%.
Martin McNulty, director of search marketing specialist, Trafficbroker, commenting on the possible partnership, said that even if the deal does go ahead, the collaboration is unlikely to offer an increased threat to Google, which "is in a league of its own".
McNulty said: "It's unclear why Yahoo! can't stand on its own two feet, as it still commands a significant market share in search queries and advertising revenues globally.
"The benefits of getting into bed with Microsoft simply aren't as strong as some claim. Yahoo! always has the option to innovate as we saw with this week's redesign."
McNulty added that the bigger question is why Microsoft, with its own deep pockets, can't come up with the answer to Google on its own.
"There's an element of desperation to all this and perhaps a tacit admission that behind the hype, Bing isn't really a serious contender and that Microsoft's fate is still heavily linked to the PC market, which is far from healthy."