Updated from 5 p.m. EDT




missed Wall Street's second-quarter estimates and delivered a ho-hum forecast, but investors were finally

giving the stock a break.

Yahoo! said Tuesday that second-quarter profit fell to $131.2 million, or 9 cents a share, from $161 million or 11 cents a share, a year ago in the same period.

Excluding special items, Yahoo! said it earned 10 cents a share, missing Wall Street estimates by a penny.

Revenue climbed to $1.8 billion, a 6% increase from $1.7 billion a year ago. Excluding traffic-acquisition costs, which is the portion of revenues shared with partners, Yahoo! posted a total of $1.35 billion, falling short of the Street's estimate for $1.37 billion.

For the third quarter, the company said it expected revenue of $1.78 billion to $1.98 billion (including TAC), and operating cash flow of $405 million to $465 million. The Street had estimated revenue of $1.41 billion (excluding TAC).

For the full year, Yahoo! raised the bottom end of its revenue outlook to $7.35 billion but lowered its top end to $7.85 billion. Previously, it had forecast full-year revenue of $7.2 billion to $8 billion.

The projections don't include potential revenue from a recent deal reached with


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, in which Yahoo! will outsource some of its search ads to its rival. Yahoo! expects the arrangement -- which is still undergoing regulatory review -- to generate $800 million in revenue annually, and an estimated $250 million to $450 million in incremental operating cash flow in the first 12 months of implementation.

Shares of Yahoo!, which have fallen in the wake of tumultuous dealings with both


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and activist investor Carl Icahn, were up 45 cents, or 2.1% to $21.80 in recent after-hours trading.

On Tuesday's conference call with analysts, Chief Executive Jerry Yang discussed the difficulties Yahoo! employees faced in trying to stay focused on the business amid all the discussion about a possible Microsoft takeover as well as Icahn's proxy fight, and praised them for keeping the company going under the circumstances.

Yahoo!'s operating income fell 45% in the second quarter to $101 million, which included incremental costs of $22 million for outside advisers related to Microsoft's bid and proxy fight. On Monday, Yahoo! reached a compromise with Icahn that would allow him three seats on the board.

Yahoo! President Sue Decker talked about continuing strength of Yahoo!'s display advertising business but also noted the effects of a softening economy. Categories such as finance, travel and retail have taken a hit and the company is seeing a shift away from brand-based display ads in favor of performance-based ads.

Revenue from the U.S. totaled $1.27 million in the second quarter, a 13% increase over last year in the same period. But internationally, revenue dropped by 8% to $534 million from a year ago, largely because of a change in the way Yahoo! now reports results from its Japan business. Up until August of last year, revenue in Japan had been accounted for on a gross basis and now it is recorded on a net basis.

Marketing services revenue from Yahoo! owned and operated sites grew 14% to $1 million in the second quarter, although affiliate sites saw a 4% decline to $571 million, which the company also attributed to its Japan business.

The company declined to discuss the much-rumored possibility of spinning off its Asian assets, acknowledging only that executives have been considering all options.

"In general, the assets have been critical to expand into Asia as quickly as possible," said Chief Financial Officer Blake Jorgensen.