SAN FRANCISCO -- In an effort to reduce costs during a tough economic climate, Yahoo! ( YHOO) announced that it would slash 10% of its workforce, leaving more than 1,500 people out of a job.

The news came as Yahoo! delivered third-quarter results that matched Wall Street earnings estimates but fell short of revenue expectations. The company also lowered its full-year revenue guidance as pressure on its premium display advertising continued to mount.

Shares of Yahoo! were up 7.3% to $12.95 in after-hours trading.

The company said its goal is to reduce its current annualized cost run rate of approximately $3.9 billion by more than $400 million before the end of the year. The job cuts will come on top of the 1,000 that Yahoo! had already authorized in January.

Yahoo! Chief Executive Jerry Yang said the company has been looking for ways to lower costs all year long, including a slowdown in hiring as well as a shift of some of its jobs to lower-cost regions like Eastern Europe, India and Southeast Asia.

"We do think that taking aggressive actions around our cost structures will unlock shareholder value," Yang said on a conference call with analysts on Tuesday, in a response to a question about how the company planned to add value to its business. "Yahoo! has been growing in terms of a cost base over a significant period of time and we have some areas where efficiencies can be realized."

For the third quarter, Yahoo! reported a profit of $54 million, or 4 cents a share, falling from $151 million, or 11 cents a share, a year ago in the same period.

Excluding special items, Yahoo! said it earned 9 cents a share, in line with Wall Street estimates.

Revenue climbed to $1.79 billion, a 1% increase from $1.77 billion a year ago. Excluding traffic-acquisition costs (TAC), which is the portion of revenues shared with partners, Yahoo! posted a total of $1.33 billion, just short of the Street's estimate for $1.37 billion.

For the fourth quarter, the company said it expected revenue of $1.77 billion to $1.97 billion (including TAC), and operating cash flow of $490 million to $570 million.

But for the full year, Yahoo! reduced its revenue guidance to the range of $7.18 to $7.38 billion, including TAC. That was down from its previous forecast of $7.35 billion to $7.85 billion.

Yahoo! President Sue Decker noted in Tuesday's conference call that while demand for Yahoo!'s search and performance-based ads were holding strong, its premium display ads were taking a hit as advertisers pulled back on their spending for branding. International display ads were also slowing down far more significantly than expected, she said.

In the third quarter, owned and operated Yahoo! search ads experienced a year-over-year growth of 17%, to $438 million. But display ads grew by only 3%, to $435 million.

Decker said most of the company's ad mix consists of premium display ads, and although some advertisers are consolidating their budgets to the benefit of Yahoo!, the cutback in total spending has proven more detrimental.

As for the search deal with Google ( GOOG), which Yahoo! had hoped would generate as much as $800 million in annual revenue, Yang would only say that it was still under review by the Justice Department.

In June, Yahoo! had entered into an agreement with Google to outsource some of its online search ads in the U.S. and Canada. The two companies had originally sought to implement the arrangement this month, but then decided to hold off.

"We agreed to a brief delay and we are having our ongoing dialogue with the DOJ," Yang said.