All information discussed on this call is as of today, July 20th, 2010, and Yahoo! does not intend and undertakes no duty to update this information to reflect subsequent events or circumstances.On today's call, we will also discuss some non-GAAP financial measures as we talk about the company's performance. These may include total expenses less traffic acquisition costs or TAC, and total expense less TAC, depreciation and amortization and stock-based compensation expense. Reconciliations of those non-GAAP measures to the GAAP measures we consider most comparable can be found on our corporate website, info.yahoo.com, under Investor Relations. We have prepared remarks and then we'll have a brief Q&A session with Carol and Tim. And now, I’d like to turn the call over to Carol. Carol Bartz Thanks, Marta. Hello and thanks for joining us. It was great to see so many of you in person at our Investor Day. On today's call, we'll recap the recent quarter, discuss our efforts around engagement, as well as our performance in the search and display ad market. We'll address some key milestones we've hit in our transition with the Microsoft Search Alliance, as well as what to expect next with the migration, and of course answer your questions. So let's start with Q2. We continued to deliver on our promise to improve operating income and margins, but we were on the low end of our revenue guidance. We saw operating margins expand more than 600 basis points to 11% year-over-year, and excluding restructuring charges in 2009 and 2010, income from operations grew 32%. So we did great on operations and controlling expenses, but why did we hit the low end of the revenue? Well, it's a combination of factors. Of course, one is FX, but the majority of the story is split evenly between the search and display marketplaces. With regard to search, we gained share in the quarter, but we didn't monetize searches as much as we expected.
On the display side, with our owned and operated sites, we saw healthy ad spending of 19%. But the second week of June, we saw demand slow down as a handful of big advertisers pulled back. There was also no last-minute spot market this quarter. We believe it was due to quarterly expense management for their companies. The first three weeks in July indicate we are back to normal. In June, we attended the world's largest ad conference, where we had numerous conversations with advertisers. It did not get the sense of a persistent problem.Before we turn the call over to Tim to discuss the quarter in detail, I'd like to answer a question that most of you ask me. How do we measure our business? Obviously, we watch revenue and operating margin very closely. Those are our most important metrics. We also have many internal metrics that we use to run our business and of course, we track third-party reports. While there is no one metric that captures everything, we concern ourselves our most with users and their engagement on our network. This includes how engaged are our users around our communication and social products like mail, messengers, Flickr, and Answers, how engaged are they with search, and how engaged are they with our rich and varied content sites. So let me talk a bit about what we are doing to drive engagement. On the content side, having great content that's real-time, interesting, and entertaining is one thing, but that's not enough to ensure engagement. Users today want to go beyond words presented on the screen. They want video, they want to interact, they want a social aspect, they want it anywhere, anytime, on any device, and they want it very personally relevant and local. These are the four Os I talked about it at Investor Day; video, social, mobile, and local.
The big content move we made in Q2 was our acquisition of Associated Content. Their crowdsource approach with 380,000 contributors rounds out our content strategy. We now have an incredible resource to tap that extends our ability to provide high-quality, personally-relevant content to our users and advertisers.Read the rest of this transcript for free on seekingalpha.com