updated 10/16/2007 5:54:27 PM ET 2007-10-16T21:54:27

Yahoo Inc.’s third-quarter profit slipped less than analysts feared, raising hopes that the slumping Internet powerhouse can deliver on the comeback promises of a new management team that took over four months ago.

The prospect of better times ahead lifted Yahoo’s stock price nearly 10 percent late Tuesday.

The Sunnyvale-based company said it earned $151.3 million during the three months ended in September. That was 5 percent less than its net income of $158.5 million in the same period last year.

The earnings were 11 cents per share in both periods because Yahoo bought back some of its stock in an attempt to bolster its eroding market value.

Analysts had low expectations after Yahoo struggled through the first half of the year in spite of an online advertising boom. The company’s third-quarter results exceeded the average earnings estimate among analysts surveyed by Thomson Financial.

Revenue for the period totaled $1.77 billion, a 12 percent improvement from last year.

After subtracting commissions paid to Yahoo’s advertising partners, revenue stood at $1.28 billion — nearly $40 million above the average analyst estimate, according to Thomson Financial.

Investors cheered the news, released after the stock market closed. Yahoo’s stock price surged $2.56, or 9.7 percent, in extended trading after finishing Tuesday’s regular session at $26.69, down $1.17.

“We are executing against our transformation and are excited about playing a leadership role in the large and growing Internet market,” said Yahoo co-founder Jerry Yang, who took over as chief executive in mid-June after Chairman Terry Semel relinquished the reins under pressure from disgruntled shareholders.

Yang has been teaming up with Susan Decker, whose duties were expanded as part of the June shake up, to position Yahoo to make up some of the ground that it has lost to online search leader Google Inc. during recent years.

In the process, Yahoo hopes to grab a bigger chunk of the money that advertisers are spending on the Internet to connect with consumers who are surfing the Web instead of watching television, listening to the radio or reading newspapers and magazines.

Toward that end, Yahoo has been expanding the reach of its advertising network through acquisitions and partnerships with other Web sites. The company also has upgraded its system for delivering text-based ads tied to search requests — the approach that generates most of Google’s profits.

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