updated 10/18/2005 7:19:56 PM ET 2005-10-18T23:19:56

Yahoo Inc.’s robust advertising growth continued in the third quarter, powering the Internet icon to a profit that topped analyst expectations.

The Sunnyvale, Calif.-based company said Tuesday that it earned $253.8 million, or 17 cents per share, during the three months ended in September. That was essentially unchanged from net income of $253.3 million, or 17 cents per share, at the same time last year when Yahoo realized a $129 million windfall by selling part of its stake in rival Google Inc.

Revenue for this year’s period totaled $1.33 billion, a 47 percent increase from $906.7 million last year.

If not for a $16 million gain from the sale of another investment and an unusually low tax rate during the quarter, Yahoo would have earned 15 cents per share, said Susan Decker, the company’s chief financial officer.

That figure still exceeded the consensus estimate of 14 cents per share among analysts surveyed by Thomson Financial.

After subtracting the commissions that Yahoo paid to its advertising partners, Yahoo’s third-quarter revenue totaled $932 million — a figure that also beat the consensus analyst estimate of $918 million.

Yahoo released the results after the stock market closed Tuesday. The company’s shares fell 46 cents to close at $33.70 on the Nasdaq Stock Market, then added 5 cents in extended trading.

Despite the strong third quarter, Yahoo raised its earnings outlook only slightly.

The performance continued Yahoo’s recent streak of prosperity, which has been propelled by advertisers that have been boosting their online budgets to reach consumers who are spending more of their free time on the Web.

Yahoo has been in a prime position to capitalize on the trend because its Web site has built the largest U.S. audience after its first decade in existence. Yahoo attracted 99.3 million unique U.S. visitors last month, according to Nielsen/NetRatings, a research firm.

“The Internet and Yahoo are firmly established as ’must buys’ for brand advertising,” Yahoo Chairman Terry Semel said during a Tuesday conference call with analysts.

Despite its steady growth, Yahoo has been losing favor among investors. The company’s stock has declined by 10 percent so far this year.

Some of the erosion reflects a belief that Yahoo hasn’t been as effective at converting its traffic into profit-producing clicks on advertising links as Google has been. Google’s stock has climbed by 56 percent so far this year.

The so-called “click-through” rate in Google’s advertising network has increased from 16 percent to 20 percent since last summer while Yahoo’s continues to hover around 11 percent, according to comScore Media Metrix.

Yahoo’s earnings would improve by 3 cents per share — about $45 million — for every percentage point increase in the advertising click-through rate, estimated Citigroup analyst Mark Mahaney.

The company is working on ways to increase the click-through rate, executives assured analysts Tuesday. Some of the improvements are expected to surface next year.

Another factor restraining Yahoo’s growth has been a recent loss in its share of the lucrative Internet search engine market. Yahoo’s share in August stood at 29.7 percent, down from 30.6 percent in the prior year, comScore said. Meanwhile, Google widened its lead to a 37.3 percent share, up from 36.1 percent.

Mountain View, Calif.-based Google is scheduled to report its third-quarter results Thursday.

Yahoo continues to grow in other key areas. “The whole business is going gangbusters,” Dan Rosensweig, the company’s chief operating officer, said during a Tuesday interview.

The company ended the quarter with 191 million active registered users, a 22 percent increase from 157 million last year. Among that group, 11.4 million user subscribed to one of Yahoo’s services, generating revenue of $170 million, a 55 percent increase from last year.

Yahoo also continued to expand beyond the United States as its international revenue increased 62 percent to $407 million in the third quarter.

Hoping to further diversify its geographic mix, Yahoo recently agreed to pay $1 billion for a 40 percent stake in China’s largest e-commerce company, Alibaba.com. That deal is expected to close before year’s end.

During the first nine months of the year, Yahoo earned $1.21 billion, or 82 cents per share, on revenue of $3.76 billion. The company reported net income of $467 million, or 32 cents per share, on revenue of $2.5 billion at the same point last year.

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