Updated from 4:40 p.m.

Yahoo! ( YHOO) beat third-quarter targets behind a 42% revenue gain.

For the quarter ended Sept. 30, the Sunnyvale, Calif., Net giant made $254 million, or 17 cents a share, up from the year-ago $253 million, or 17 cents a share. Net revenue, excluding the so-called traffic acquisition costs that Yahoo! pays its Web advertising partners, rose to $932 million from $655 million a year earlier.

Marketing services revenue rose 46% from a year ago to $1.16 billion on a gross basis, before subtracting traffic acquisition costs. Fee revenue rose 55% on that basis to $170 million.

Latest-quarter earnings included a penny-a-share gain from the sale of stock. Even so, the numbers handily surpassed Wall Street's expectations. Analysts surveyed by Thomson First Call had forecast a 14-cent profit on revenue of $918 million.

"We are extremely pleased with our third quarter results, which exceeded expectations, showing strong revenue growth, continued profitability, and significant free cash flow," said finance chief Susan Decker. "Our ability to deliver another quarter of record results, while also investing in internal operations and external acquisitions, continues to reinforce the power of our business model."

The company reaffirmed fourth-quarter guidance, saying it expects to post operating income before depreciation and amortization of $477 million on net revenue of $1.06 billion, in line with the Thomson First Call consensus estimate.

"Branded advertising appears to have been quite strong," said Jordan Rohan, an analyst with RBC Capital Markets who rates Yahoo! as sector perform and doesn't own the shares, in an interview. "It looks like there was pretty good cost control."

Profit in the quarter was helped by a lower-than-expected tax rate and higher-than-expected interest income.

The news comes as investors struggle to evaluate the prospects of big Internet players like Yahoo!, InterActiveCorp ( IACI) and eBay ( EBAY) in the ever-lengthening shadow of rival Google ( GOOG). While Internet advertising revenue rose 26% in the first six months of the year to $5.8 billion, the big Net stocks -- except for Google -- have found themselves out of favor with investors. Yahoo! shares have fallen 12% and eBay is down 32%. InterActiveCorp has dropped 18% while Amazon.com ( AMZN) is down 2%, in line with the broader S&P 500 index. Google has been the exception, gaining 52%.

Meanwhile, big media players ranging from Google and Yahoo! to Comcast ( CMCSA) and Microsoft ( MSFT) continue to circle around the once-shunned America Online unit of Time Warner ( TWX) in a bid to bolster their online heft. Yahoo! chief Terry Semel declined in a postclose conference call Tuesday to discuss the company's decision to join the fray in bidding for AOL.

Yahoo! shares dropped 46 cents in regular trading Tuesday to close at $33.70. In the after-hours session, the stock rose 25 cents to $33.95.

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