Yahoo's total profit for 2007 slipped 12 per cent to $660m (£331m), down from $751m (£377m) the previous year.
Net income fell despite an eight per cent rise in sales to $6.9bn (£3.5bn).
The search giant's fourth quarter results followed the same pattern. Revenue jumped eight per cent to $1.7bn (£854m), but profit dipped 24 per cent to $206m (£103m).
"This is a pivotal time for Yahoo’s business and we have a unique window of opportunity right now to make the necessary, game-changing investments that will help us capture a significant piece of the growing ad market and create substantial long-term value for our shareholders," said chief executive officer Jerry Yang.
"While we will continue to face headwinds this year, we believe that the moves we are making will help us exit 2008 stronger and more competitive and return to higher levels of operating cash flow growth in 2009."
