Yahoo Inc. on Wednesday posted a profit more than double last year and raised its annual earnings guidance, sparked by a red hot Web advertising market and its recent acquisition of Overture Services.

Shares in Yahoo were up just over 1 percent at $39.31 in after-hours on Instinet, following the financial community's initial enthusiastic reaction.

"I think it was just an awesome result," said Safa Rashtchy, an analyst at U.S. Bancorp Piper Jaffray.

Sunnyvale, California-based Yahoo reported a net profit for the third quarter of $65.3 million, or 10 cents a share, compared with a year-earlier profit of $28.9 million, or 5 cents a share. Revenue rose to $356.8 million from $248.8 million last year.

Financial analysts' average estimates called for earnings per share of 9 cents on revenue of $337.2 million, according to Reuters Research, a unit of Reuters Group Plc.

Revenue in marketing services, the company's widely watched division responsible for advertising and sponsored search services, rose 48 percent from last year to $245.1 million.

"It was a very good quarter and illustrative of the fact that the online advertising business is thriving right now," said Derek Brown, of Pacific Growth Equities. Brown owns no Yahoo shares and his firm does no investment banking with the company.

The company posted a 38 percent rise in fees revenue, due mostly to its Internet access partnership with SBC Communications Inc. (NYSE:SBC - News) and other premium services such as games on demand. It also saw 26 percent growth in listings revenue, mostly from its HotJobs job search service.

Yahoo ended the quarter with 4.2 million unique paying subscribers to its services, and said it expects to add 500,000 to 700,000 subscribers in the current quarter.

INCOME, REVENUE VIEWS UP
For the fourth quarter, Yahoo forecast operating income before depreciation and amortization, or OIBDA, of $130 million to $150 million and revenue of $462 million to $502 million, excluding traffic acquisition costs, or TAC, incurred by its Overture subsidiary. Yahoo did not detail those costs.

Analysts surveyed by Reuters Research had expected OIBDA of $120.1 million on revenue of $372 million before Yahoo gave guidance that included the benefits of the Overture deal.

For the fiscal year, Yahoo raised guidance to OIBDA of $428 million to $448 million on revenue, excluding TAC, of $1.42 billion to $1.46 billion.

Yahoo previously expected OIBDA of $375 million to $400 million on revenue of $1.26 billion to $1.31 billion, and analysts had been expecting OIBDA of $401.8 million and revenue of $1.31 billion, according to Reuters Research. That forecast did not include the Overture contributions outlined by Yahoo.

Yahoo said it was more appropriate to give guidance for revenue that excludes Overture's costs of acquiring traffic to its sponsored search links, which traditionally made up a large part of its revenue.

Yahoo also said Overture has had "positive and productive discussions" with the MSN online unit of Microsoft Corp. (NasdaqNM:MSFT - News) in recent weeks about continuing their sponsored-search deal. LookSmart Ltd. (NasdaqNM:LOOK - News) recently lost half of its market value when it said its search deal with MSN would end.

MSN executives say they want to build their own full-featured search service, one that would give them greater control and a product more competitive against engines like Yahoo and Google (News - Websites) .

"Our expectation on the business side is we'd like very much to continue to work with the affiliates," Chief Operating Officer Dan Rosensweig told Reuters. "We expect to keep our fair share of affiliates and win new business."

Yahoo shares closed off 14 cents at $38.79 on the Nasdaq, before the release of earnings. (With reporting by Lisa Baertlein in Palo Alto)