SAN FRANCISCO - After two years of crumbling profits, Yahoo Inc. can't afford another letdown Tuesday when the Internet icon reports its first-quarter earnings.

Although they only cover a three-month period, the results could determine the Sunnyvale-based company's fate as it grapples with an unsolicited takeover offer from Microsoft Corp.

If Yahoo bounces back to exceed analysts' modest expectations, it could be a springboard to a higher bid from Microsoft or provide more credence to management's argument that the company will be better off remaining independent.

But a disappointing quarter would intensify pressure on Yahoo to accept Microsoft's cash-and stock offer, which was worth about $43 billion, or $29.96 per share, as of Monday's trading.

A lackluster performance might even cause Microsoft to lower its bid, a move that almost certainly would provoke a wave of lawsuits from angry shareholders who thought Yahoo should have accepted the offer when it was first made nearly three months ago.

Microsoft so far has insisted its initial bid is fair and has threatened to initiate an attempt to oust Yahoo's board if the 10 directors don't accept the offer by Saturday. This option, known as a proxy contest, might drag the saga into mid-July.

A solid first quarter would make Microsoft's threat less imposing because more Yahoo shareholders might side with the board's thesis that the company is rebounding and will likely be worth a lot more in the months ahead.

Since 2005, Yahoo's quarterly earnings reports have been mostly dismal affairs marked by eroding profits, disappointing revenue growth and promises of a turnaround that hasn't emerged.

But most analysts seem to think Yahoo will top their average earnings estimate of 9 cents per share, especially after rival Google Inc. electrified Wall Street late last week with a 30 percent increase in first-quarter profit.

Yahoo management signaled last month the company was on track to hit its first-quarter earnings projections.

Unlike Google, the bar hasn't been set high for Yahoo. The 9 cents per share earnings estimate among analysts surveyed by Thomson Financial represents a slight decline from 10 cents per share that the company made at the same time last year.

Google's first-quarter performance probably gave Microsoft even more incentive to buy Yahoo quickly because further delays will better position Google to widen its lead in the Internet search and advertising market, Collins Stewart analyst Sandeep Aggarwal wrote in a Monday note to investors.

Microsoft views Yahoo as a key weapon in its effort to catch up to Google.

Aggarwal believes Microsoft will boost its Yahoo bid to $33.50 per share, or about $48 billion, to get the deal done more quickly. Other analysts say Microsoft can afford to pay as much as $35 per share, or about $50 billion.

Redmond, Wash.-based Microsoft will update its own finances Thursday when the software maker is scheduled to release fiscal third-quarter results.

Besides reviewing its first-quarter results on Tuesday, Yahoo management also is expected to provide more details about an experimental advertising partnership with Google. The two-week trial is supposed to wrap up Wednesday.

If Yahoo decides to pursue a long-term relationship with Google, it could lift Yahoo's profits and pave the way for possible merger with Time Warner Inc.'s AOL, another Internet pioneer that has been stuck in a funk for years.

Yahoo and AOL reportedly have been in discussions about a possible combination for months. Google owns a 5 percent stake in AOL.

Sanford C. Bernstein analyst Jeffrey Lindsay thinks the moneymaking potential of long-term deal between Yahoo and Google could propel Yahoo's stock price beyond $40 - a level it hasn't reached in more than two years. Yahoo shares finished at $28.55, up 12 cents Monday.

But other analysts doubt antitrust regulators will let Google and Yahoo join forces, given the two rivals control more than 80 percent of the U.S. search market. In contrast, a combination between Microsoft and Yahoo would hold about 31 percent of the search market - still well below Google's 60 percent share.

Still, the mere prospect of other Yahoo alliances might be enough to cause Microsoft to boost its bid if Yahoo delivers in the first quarter.

"Yahoo has done a lot of dumb things in this process, but they have been pretty smart lately," said Darren Chervitz, director of research for the Jacob Internet Fund, which owns a stake in Yahoo. "When you get down to it, this is all about squeezing a few more dollars out of Microsoft."

SAN FRANCISCO - Netflix Inc. got off to a rousing start during the first three months of the year, but investors are worried about the online DVD rental service's script for the rest of 2008.

After benefiting from the biggest quarterly influx of new customers in its 10-year history, Netflix is preparing for slowing growth during the next few months and bracing for higher expenses to pay for the shift to high-definition DVDs and increased digital downloading of movies and TV shows.

Those factors contributed to a cautious outlook that caused Netflix's recently rising stock price to plunge 14 percent in after-hours trading Monday after the Los Gatos-based company released its first-quarter results.

Many investors also seemed disappointed that Netflix's first-quarter profit increase of 36 percent merely matched analyst projections instead of exceeding expectations.

A small percentage of Netflix's customers also could be feeling disillusioned later this year when the service said it plans to impose a "modest" fee increase to rent more expensive, high-definition Blu-ray discs. The company is raising rates to help offset rising costs as it expands its library to include more selections in the high-definition format.

Netflix's most popular rental plans currently range from $13.99 to $16.99 per month.

The rate increases are expected to affect less than 10 percent of Netflix subscribers because relatively few households own Blu-ray DVD players.

But it wasn't all bad news for customers.

Netflix also disclosed that it has lined up three more partners to expand a service that will let subscribers stream about 9,000 movies and TV shows over high-speed Internet connections at no additional cost. Paying for the streaming service is driving up Netflix's expenses, though management hasn't quantified by how much.

Three consumer electronics companies will stream Netflix's digital service on televisions, expanding upon an earlier partnership announced earlier this year LG Electronics.

Chief Executive Reed Hastings didn't identify Netflix's newest partners but said two of them are well known. The box for delivering Netflix's streaming service to television is expected to hit the market during the fourth quarter.

In the first quarter, Netflix earned $13.4 million, or 21 cents per share, up from net income of $9.9 million, or 14 cents per share, in the same 2007 period.

Revenue rose 7 percent to $326.2 million from $305.3 million.

Netflix ended March with 8.24 million subscribers, a gain of 764,000 customers from the end of 2007. That eclipsed the service's previous record of 687,000 new customers added in the first quarter of 2006.

Management attributed much of the first-quarter surge to a series of rate increases announced in late December by its biggest rival, Blockbuster Inc. The higher prices triggered a backlash that drove more DVD renters to Netflix, which cut its prices last summer.

But Netflix anticipates only 60,000 to 260,000 more customers will sign up during the current quarter ending in June - typically a challenging period anyway because more people are interested in basking in the warm weather than in watching movies on their couches.

In another worrisome sign, Netflix shaved a penny off the upper end of its full-year guidance to $1.29 per share.

Netflix shares plunged $5.52 to $33.80 in Monday's extended trading. The Los Gatos-based company's market value had risen nearly 50 percent this year on hopes it would be able to build momentum.

Propelled by more robust growth toward the end of the year, Netflix anticipates entering 2009 with as many as 9.7 million subscribers, up from its previous forecast of 9.5 million customers.

NEW YORK - Most Americans are still hesitant about banking with their cell phones and PDAs, but young people are increasingly coming around to the idea of mobile banking, according to a new survey.

Meeting the needs of these tech-savvy customers is going to be key for banks to stay competitive - the income of "Generation Y" is expected to surge over the next 10 years and exceed that of Baby Boomers.

So far, although most major banks offer mobile banking services, 89 percent of consumers do not use their cell phones to conduct mobile banking transactions, according to a study by IBM's retail banking consulting practice shown to The Associated Press.

The results are based on a telephone survey of 1,424 U.S. adults, age 18 or older, conducted Jan. 24-28 by Opinion Research Corp. To qualify for the survey, respondents had to own a cell phone and have a bank account. The margin of error was plus or minus 2 percentage points.

As one might expect, younger consumers appear to be jumping aboard the mobile banking trend more quickly than others. The study found that 21 percent of consumers age 18-34 use their cell phone for mobile banking transactions, compared to about 10 percent of the general population.

These numbers - particularly for younger consumers - are expected to grow significantly.

Research firm Aite Group predicts that mobile banking users in the United States, having ballooned from a negligible number at the end of 2006 to 1.7 million by the end of last year, will rise to 8 million by the end of this year. And by 2010, Aite Group forecasts that 35 million Americans will be mobile banking users.

Right now, nine of the 10 top banks offer mobile banking to customers. Bank of America Corp. has the most mobile banking customers - about half a million, according to Aite Group analyst Nick Holland. But setting up the technology is just the first step. Going forward, banks will need to stay ahead of the curve in terms of both reputation and technology.

Reputation is important because the biggest reason for avoiding mobile banking, given by 65 percent of respondents, was that consumers are worried their personal information is not secure. And technology is important because, while online banking is becoming more common, the notion of banking outside a branch in the United States is only in the nascent stages.

Banks are "pretty much keeping up with the Joneses," said Wendy Feller, head of the financial services practice for the IBM Institute for Business Value. "My bigger fear is that they're not pushing the envelope."

If they don't, other companies could elbow their way in - which has happened in other countries, Feller pointed out. One example is Smart Padala, an international remittance service in the Philippines that customers access through their mobile phones.

Losing mobile-banking business to other companies could mean losing out on billions of dollars of potential deposits. The Deloitte Center for Banking Solutions reported last week that Generation Y, born in the 1980s and early 1990s, has more than 75 million members and collective annual income of $1.89 trillion. Deloitte predicts their earnings will increase by 85 percent over the next 10 years to $3.5 trillion, exceeding Baby Boomers' earnings by some $500 billion.

At this point, the capabilities of mobile banking - essentially, doing transactions on-the-go using a cell phone or other mobile device - are practically the same as online banking. You can do simple functions like check your balance, move money from one account to another, or set up automatic bill pay. But technology allowing people to use their phones like credit or debit cards is developing.

Meanwhile, marketing efforts aimed at luring customers to online banking has trailed off a bit since last year, Holland said.

"It was maybe a little overheated last year, but is seeing some retrenchment as banks ask, what are we going to do to actually generate revenue?"

IBM's survey showed that 84 percent of consumers would not be willing to pay a fee for mobile banking.

But banks, still struggling with the U.S. mortgage crisis, should see mobile banking as way to attract customers and their deposits, Holland said - and trim costs, too. Customers' calls to call centers, he said, cost banks an average $14 each.