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Yahoo! Wins Respect

Shares jump as the company posts a rare earnings beat.

Updated from 4:53 p.m. EDTYahoo!'s (YHOO) grand plan to turn around its struggling business is finally taking shape.

On Tuesday, the company announced third-quarter results that topped Wall Street's top and bottom line forecasts. Yahoo!'s performance was a pleasant surprise for investors, sending the company's stock up almost 10% in after-hours trading.

But more than the quarter's results, investors were eager to hear Yahoo!'s future strategy. In the company's conference call for investors, CEO Jerry Yang -- who is wrapping up a 100 day strategic review of the business -- laid out an ambitious vision.

Increasing the company's relevance in the rapidly shifting Internet space seems to be the top priority for Yahoo!. Both Yang and President Sue Decker stressed that the company was intent becoming more central in the Web experience of an increasing number of users.

"We already have a huge audience and strong publisher and advertiser relationships," Yang said. "So we have all the pieces and are working from a position of strength."

But Yang also said the future of the company's strategy would consist of three main items:

Yahoo! will seek to be the starting point for a growing number of Internet users. This means the company will ramp up popular properties like Finance and News, while cutting back on less-used services.

The company will also seek to be the "must buy" ad space for a growing number of advertisers. Scaling up its Right Media ad exchange and banking on more behavioral targeting technology -- which takes into account user activities in deciding which ads to display -- will be key in this process, Decker said.

Finally, Yang again underscored Yahoo!'s transition to a more open platform, where third-party developers will be able to augment and grab from the company's massive technology platform. "In the past, we have made this unintentionally more difficult for developers," Yang said. "But we are now finding different ways to open up Yahoo!."

The company also trumpeted some accomplishments to try to convince investors a turnaround was under way. Revenue per search posted double-digit gains again this quarter, thanks to its new Panama ad ranking system, which was launched at the beginning of this year, Decker said. That means the company now makes 30% more per search than it did a year ago.

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After five quarters of a sluggishness in Yahoo!'s online display business, the third quarter again saw accelerated growth.

It's a small start on a big and bold vision for Yahoo!. But for now, the company should be commended for a rare quarter that delivers an upside surprise nonetheless.

Yahoo! said its net income for the third quarter was $151 million or 11 cents a share, compared to $159 million or 11 cents a share for the same period a year ago.

Revenue rose 12% year over year to $1.77 billion, up $1.58 billion for the same period of 2006.

Excluding certain items, revenue rose 14% to $1.28 billion for the third quarter of 2007, up from $1.12 billion for the same period of 2006.

For the quarter, analysts surveyed by Thomson Financial/First Call expected Yahoo! to earn eight cents a share on revenue of $1.24 billion.

For the fourth quarter, the company said it expected revenue between $1.31 billion and $1.45 billion.

Analysts had expected revenue of $1.37 billion.

For the full-year 2007, the company said it expects revenue of between $5.02 billion and $5.12 billion.

For the year, analysts expected earnings of 42 cents on revenue of $5.04 billion.