NEW YORK (CNNMoney.com) -- Shares of Yahoo rose after-hours Tuesday after the company posted a fourth-quarter profit that beat Wall Street expectations, driven by stabilization in advertising revenue.
The world's second-largest search engine also forecast first-quarter revenue well past analysts' expectations.
Yahoo earned $153 million, or 11 cents per share, in the three months ended Dec. 31, compared with a loss of $303 million, or 22 cents per share, a year earlier.
Excluding charges related to restructuring and a search agreement with Microsoft, Yahoo reported 15 cents per share. Analysts polled by Thomson Reuters, who typically strip out one-time items, were expecting 11 cents per share.
Sales fell 4% to $1.7 billion year-over-year, but were 10% higher compared with the previous quarter. In its last forecast, Yahoo said it expected quarterly revenue between $1.6 billion and $1.7 billion.
Excluding advertising sales shared with its partners, also known as traffic acquisition costs -- or TAC -- the Sunnyvale, Calif., company's revenue fell 8% to $1.3 billion, but edged past analysts' forecast of $1.2 billion.
"We beat the high end of our revenue guidance, saw demand for premium display advertising improve significantly, and grew Owned and Operated search advertising revenue sequentially for the first time since the third quarter of 2008," Yahoo chief executive Carol Bartz said in a statement. Bartz has been at the helm of the company for just over a year.
For Yahoo owned and operated sites, search advertising revenue fell 15% year-over-year, but increased 4% compared with the third quarter of 2009.
The search giant's closely watched display advertising business fell 1% from last year, but surged 26% from last quarter, marking the strongest third-to-fourth-quarter growth since 2006.
"Overall, things seem to be returning to a normal state in the online advertising world," said Bartz during a conference call. She added that Yahoo is "still ahead in the display game" and intends to keep it that way.
"Companies need display ads to tell a story. You can't position a brand with keywords," Bartz said.
For the current quarter, Yahoo forecast revenue between $1.6 billion and $1.7 billion, excluding TAC. That's much higher than the $1.2 billion analysts expect, and would top the $1.2 billion in sales Yahoo earned in the first quarter of 2009.
"A sequential rebound in owned and operated display and search advertising suggests that Yahoo has some momentum going into 2010, likely driven by the economy as well as the company's initiatives," said Stifel Nicolaus analyst George Askew.
For the full year, Yahoo reported a profit of $598 million, or 42 cents per share, up 43% from 2008. Sales in 2009 dropped 10% to $6.5 billion. Excluding TAC, revenue fell 13% to $4.7 billion.
Yahoo said it has finalized its search deal with Microsoft, which aims to challenge Google's dominance in online search, and hopes the deal will close early this year.
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