It's far from over for Overture Services (OVER) , evidently.

Overture, the biggest operator of pay-per-click search engine advertising, said Monday that it has extended and expanded the agreement that puts its service on Internet properties owned by

Microsoft

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.

The news, which sent Overture's shares up as high as 11% on a dismal day for the markets, illustrates once again how long-running arguments over the battleground stock translate into short-term swings in Overture's stock price.

On one side, the company's supporters say that the company's performance is remarkable. In a business that has suffered mightily in the recent past -- not just advertising, but Internet advertising -- Overture has continued to not only build revenue and profits but also beat estimates.

On the other side, short-sellers say that the company's market and margins will inevitably be gnawed away by competitors such as the privately held

Google

, which operates its own pay-per-click advertising, and by large publishers, such as Microsoft and

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Yahoo!

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, which have the power to demand a greater cut of Overture's revenue than they receive now for running Overture's advertising on their site.

Monday's victory went to Overture's longs. The agreement that puts Overture's results on the "Search" pane of Microsoft's Internet Explorer Web browser for users in the U.S., Canada and United Kingdom -- slated to expire Monday -- has been extended through the end of 2003. An agreement to use Overture's results on various Microsoft Network properties, set to end at 2003's close, has been extended another year.

Additionally, say Overture and Microsoft, the agreements have been expanded to cover end-users in Germany and France. And Microsoft will test Overture in Japan after Overture's scheduled debut in that country by the end of 2003.

In a pointed reference to short-sellers' arguments that the company will have to share a greater portion of its revenue with publishers to keep winning business, Overture said Monday that it foresaw no change to its July financial forecast, "including traffic acquisition costs," as a result of the new MSN deal.

Under the Gun
Shorts, longs battle on Overture

Rumors that Google had won the Microsoft business had been circulating for at least a week before Monday's announcement.

Ethan McAfee, investment analyst at Overture shareholder Capital Crossover Partners, says the announcement has several positives to it. The contract is not only extended but expanded to new geographical areas, he points out. It does not appear that Overture has to give Microsoft a larger revenue cut.

Particularly encouraging, says McAfee, is Microsoft's apparent decision to work with Overture in Japan, a country in which Overture doesn't currently operate. Since Overture is starting from scratch in that market, Microsoft might logically want to launch its own pay-per-click search engine operation there, rather than help build Overture's business, says McAfee. But by choosing to go with Overture, says McAfee, Microsoft is indicating that publishers would rather leave the business to Overture than develop it themselves. "If they're not going to do it now, they're never going to do it," he says.

Overture's shares were up $1.24 Monday afternoon, to $23.26.