Updated from 5:23 p.m. EDT

SAN FRANCISCO -- Yahoo!'s ( YHOO) first-quarter results managed to top Wall Street estimates, buying it a bit of wiggle room to avert a takeover by Microsoft ( MSFT - Get Report).

The Internet giant beat the Street's first-quarter earnings estimates and boosted its guidance for full-year operating income. Its revenue guidance for 2008, however, remained unchanged.

Yahoo! said Tuesday it posted a first-quarter profit of $542.2 million, or 37 cents a share, which includes a non-cash gain of $401 million related to Alibaba Group's initial public offering of Alibaba.com, in which Yahoo! has a 40% stake. That compared with $142.4 million or 10 cents a share, a year ago in the same period.

Excluding special items, Yahoo! said it earned 11 cents a share, beating Wall Street estimates for 9 cents a share.

Revenue for the first quarter climbed to $1.82 billion from $1.67 billion. Excluding traffic-acquisition costs, which is the portion of revenues shared with partners, Yahoo! posted a total of $1.35 billion, ahead of the Street's estimate of $1.32 billion and above the midpoint range of the company's own guidance of $1.28 billion to $1.38 billion.

For the second quarter, Yahoo! said it expects to post revenue of $1.73 billion to $1.93 billion. The Street had estimated revenue of $1.37 billion, but that figure excluding traffic acquisition costs.

For the full year, Yahoo! reiterated its revenue outlook to $7.2 billion to $8 billion, but raised its operating income before items by $50 million to $1.78 billion to $2.03 billion.

Operating income for Yahoo!'s first quarter was down 28% to $121 million from $169 million a year ago. That included a pretax cash charge of $29 million in severance packages as a result of job cuts at the Sunnyvale-Calif.-based company, which reduced its staff level to 13,800 from 14,300 last quarter. It also included incremental costs of $14 million for outside consultants who have been advising Yahoo! on the Microsoft proposal.

On Jan. 31, Microsoft made an unsolicited $31-a-share bid for Yahoo!, which so far Yahoo! has refused. On Tuesday, Chief Executive Jerry Yang reiterated that Yahoo! is exploring all its options, including one with Microsoft; however, it won't settle for anything less that the company's true value.

Yang described Yahoo!'s first quarter as one of the most exciting in its history, adding that the results prove the company still has tremendous value.

He also recapped Yahoo!'s March presentation to investors, which outlined the company's strategies for growth, including $1.9 billion in added revenue excluding traffic acquisition costs over the next three years from display and video advertising. Yahoo! also expects $1.4 billion in revenue from search.

Microsoft seems unconvinced of Yahoo!'s lofty projections. CEO Steve Ballmer on Tuesday said that regardless of Yahoo!'s earnings report, "it doesn't affect the value of Yahoo! to Microsoft," according to a report from Reuters.

Microsoft, which reports earnings on Thursday, has also warned Yahoo! that if the two companies don't reach a deal by Saturday, it will move forward with a proxy fight to oust Yahoo! board of directors, replacing them with candidates who would favor a Microsoft takeover.

For its part, Yahoo! needed a strong first quarter in order to convince investors - and Microsoft - of its worth. A miss would have been detrimental.

At the same time, the company faces challenges ahead. Although it beat estimates, it didn't blow out any numbers, leaving it still vulnerable to Microsoft but giving it a little leverage to possibly squeeze more money out of the Redmond, Wash.-based company.

Yahoo! posted a 19% increase in U.S. revenue in the first quarter, totaling $1.31 billion. Internationally, however, revenue slipped by 11% to $510 million.

Chief Financial Officer Blake Jorgenson on Tuesday said that the company is seeing continuing weakness in categories like retail, travel and finance. Still, Yahoo! maintains that it can benefit from advertisers shifting online from traditional mediums.

Shares of Yahoo! were off 22 cents to $28.32 in recent after-hours trading. The stock has traded in a tight range since Microsoft's $31-a-share offer earlier this year.