Updated from 10 a.m.

aQuantive

(AQNT)

said its third-quarter profit fell 60% from a year ago, when it reversed a valuation allowance for deferred tax assets.

Net income was $9.4 million, or 13 cents per share, compared with $24.1 million, or 34 cents, a year earlier, the Seattle-based company said in a statement. Excluding the reversal, net income in the 2004 period would have been $3.5 million, or 5 cents. Surging demand for online advertising boosted sales 69% to $78.8 million.

Though the results exceeded the 10-cent average profit estimate and the $75.2 million average revenue estimate of analysts surveyed by Thomson Financial, investors were apparently expecting better results. They also were surprised by Chief Financial Officer Michael Vernon's decision to leave next year. His departure isn't the result of any dispute with the company, aQuantive said. aQuantive shares slid $1.46, or 6.5% to $21.02.

"While the Q3 outperformance was not as strong as the previous two quarters, we would note that Q3 is typically a seasonally slower quarter," wrote Piper Jaffray analysts Aaron Kessler and Safa Rashtchy in a note to clients today. Piper Jaffray rates the shares buy and makes a market in the stock.

The company is benefiting from a shift of advertising dollars from traditional media such as newspapers to Web sites. Companies spent $5.8 billion on Internet advertising during the first six months of the year, up 26% from the same period a year earlier, according to the Internet Advertising Bureau. Advertisers are also increasing their online spending at a faster rate than more traditional media.

"We are very pleased with our performance and feel that we have strong guidance for the rest of the year," said Brian McAndrews, the company's chief executive, in an interview.

aQuantive said it expects to earn 11 cents to 14 cents on sales of between $78 million and $82 million in the fourth quarter. Analysts were expecting a profit of 12 cents and sales of $80.6 million, Thomson Financial said.

The company's guidance for the year, calling for a 44-cent profit on sales of $299 million to $303 million, also slightly exceeds the estimates. Analysts surveyed by Thomson Financial called for a profit of 42 cents and sales of $297.5 million.

Other companies also are benefiting from the growing popularity of Internet advertising. Last week,

24/7 Real Media

(TFSM)

, an Internet marketing company, said its third quarter loss narrowed.