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Yahoo! Rises on Earnings Beat, Reduced Alibaba Sale

NEW YORK ( TheStreet) -- Yahoo! (YHOO - Get Report) shares rose 0.9% to $33.69 after the Internet giant posted results that beat Wall Street expectations.

For the third-quarter, Sunnyvale, Calif.-based Yahoo! reported earnings of 34 cents a share on $1.081 billion in revenue, as search revenue excluding traffic acquisition costs (TAC) rose 3% year-over-year to $426 million.

Analysts surveyed by Thomson Reuters expected Yahoo! to earn 33 cents a share on $1.08 billion in revenue for the third quarter.

Yahoo! will hold an earnings livestream at 5 p.m. EST to discuss the results.

"I'm very pleased with our execution, especially as we've continued to invest in and strengthen our core business," said Yahoo! CEO Marissa Mayer. "In Q3, we launched new user experiences across many of our digital daily habits -- Yahoo Screen, My Yahoo, Fantasy Sports, and more. Now with more than 800 million monthly users on Yahoo -- up 20 percent over the past 15 months -- we're achieving meaningful increases in user engagement and traffic."

Display revenue ex-TAC fell 7% year over year to $421 million, despite the number of ads being sold (excluding Korea) increasing 1% over the same time frame. The company said the price-per-ad, a key advertising metric, fell 7% year over year.

In addition to the earnings, Yahoo! announced it had entered into an amended agreement with Alibaba, of which it owns 24%. It will now sell 208 million shares during the upcoming Alibaba IPO, down from 261.5 million.

During the quarter, Alibaba and Yahoo! Japan, of which Yahoo! owns 35%, contributed $233 million in earnings to Yahoo!

Yahoo! ended the quarter with $3.2 billion in cash and cash equivalents, down from $6 billion at the end of 2012. The company used $1.685 billion during the quarter for buybacks, purchasing 59 million shares. It also used $163 million during the quarter for acquisitions.

"In Q3, we generated free cash flow of $249 million and returned an additional $1.7 billion to shareholders through buybacks," said Ken Goldman, Yahoo!'s CFO. "As we exit Q3, we are extremely pleased with the strength of our balance sheet, with nearly $3.2 billion in cash and securities, and we are well positioned with ample liquidity to fund our future investments for growth."

For the fourth quarter, Yahoo! expects revenue to between $1.18 billion and $1.22 billion, with non-GAAP operating income expected to be between $240 million and $260 million.

Analysts surveyed by Thomson Reuters expect revenue excluding TAC to be $1.25 billion.

Shares of Yahoo! closed lower in Tuesday trading, off 1.8% to finish at $33.38.

-- Written by Chris Ciaccia in New York

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