Yesterday, Yahoo released second quarter results that showed strong growth in revenues and profits. Following the ill logic of Wall St, Yahoo share prices fell over 10% on the news.

Susan Decker, Yahoo’s Chief Financial Officer reported a 51% increase in revenues from last year at $1.25 billion over the $832.3 million reported in Q2-2004. Ms. Decker also reported a net income of $754.7 million or 51-cents per share, a dramatic rise above last year’s figures of $112.5 million or 8-cents per share.

Marketing revenues, which include search and branded advertising sales accounted for 1.09 billion with fees for services rose to $159 million last quarter.

Yahoo actually beat Wall St. estimates for second quarter growth but, as shown by the hit share prices took on after-hours trading, investors expected them to smash analysts’ estimates. Yahoo closed the day yesterday at $37.73 per share but opened to day at $33.82. At the time this piece was written (11AM Pacific), shares were trading lower at $33.66, a decrease of almost 11% from last night.

Yahoo has made two key purchases in the past three months, both of which are expected to cost the company more than they make for at least another six months. The first was the telephony firm Dialpad, likely in response to springtime rumours of Google developing a VOIP network. The second acquisition was the purchase of photo sharing and social networking firm Flickr.

Yahoo CEO Terry Semel is very pleased with Yahoo’s second quarter results, even if a bit miffed with investor reactions. Semel expects Yahoo’s paid advertising revenues to increase by more than 34% over the coming quarter. This rise is bolstered by Yahoo’s success in the International search market where revenue gains exceeded 84% last quarter. US paid-advertising revenues increased by a more modest but still extraordinary 39%.

Yahoo plans for more expansion in the coming years. “We have a balanced and healthy business model in which all parts are doing well,” Semel said, speaking to a conference call with analysts. “We were able to deliver these results even while investing in emerging opportunities, showing the power of our business model.”

Semel gave a quick heads up to the SEM community when he stated that Yahoo would continue to tweak its algorithms in an effort to achieve greater revenues from consumer web searches and small business advertisers. It will also upgrade its web publishing programs such as Yahoo Shops for small businesses.