Yahoo Inc beat Wall Street's profit and sales expectations as spending by advertisers showed signs of life in the third quarter and as months of cost-cutting and restructuring boosted the Internet company's bottom line.

Shares of Yahoo, the top US seller of online display ads but a distant No. 2 to Google Inc in search, jumped 5 per cent after the results, which analysts said boded well for the fourth quarter, when ad spending should improve further.

Yahoo's revenue from display advertising was much better than expected, said RBC Capital Markets analyst Ross Sandler, citing the 2 per cent sequential increase in US display ad sales.

"That basically says that large Fortune 500 advertisers who want high-quality, premium inventory are going back to Yahoo more in the third quarter than they were in the first or second," he said.

Yahoo's net profit more than tripled year-over-year, though a big chunk of the upside came from the sale of its stake in Chinese Web site alibaba.com.

Yahoo has undergone significant restructuring since Chief Executive Carol Bartz took over in January. It said in April it would lay off 5 per cent of its workforce, or about 675 jobs, and it also pulled the plug on underperforming properties.

Yahoo also signed a 10-year Web search partnership with Microsoft Corp to challenge Google, a pact that US and European antitrust regulators are evaluating.

Chief Financial Officer Tim Morse said on a conference call that the company still believes the deal will close in early 2010, and that they can make significant progress on integration in one or two major markets next year.

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