Struggling Internet pioneer Yahoo! beat Wall Street expectations even though its third quarter net profit dove 26 percent from a year earlier as revenue sank.

Yahoo! had net earnings of $293 million on revenue of $1.072 billion in the quarter to September 30, compared with $396 million in profit on $1.124 billion in revenue over the same period last year.

"We're pleased that revenue, operating income and EPS (earnings per share) were all above consensus this quarter," said interim Yahoo! chief executive Tim Morse.

"My focus, and that of the whole company, is to move the business forward with new technology, partnerships, products and premium personalized content -- all with an eye toward growing monetization."

The company's stock price climbed more than two percent to $15.82 per share in after-hours trade following the report.

Yahoo! continued striving to transform itself into a "premier digital media company" after being eclipsed by Google in the Internet search market where it was born.

The Sunnyvale, California-based firm said the search was still on for a new boss to replace Carol Bartz, who was ousted as chief executive in September.

Bartz has portrayed the board as being impatient for improved revenue because of the criticism it received for turning down a $47 billion takeover offer from Microsoft before she joined the company in January 2009.

A former chief executive of business software company Autodesk, Bartz was hired to engineer a turnaround at Yahoo! but was fired in September with more than a year remaining on her contract.

Morse said that recruiting a new chief executive will "take some time" and that the Yahoo! board is looking at "the full range of options available to return the company to a path of robust growth."

Rumors swirling around Yahoo! in recent weeks included that US technology colossus Microsoft or even the boss of Chinese Internet retail powerhouse Alibaba might be interested in buying it.

"Yahoo! has a leadership problem and Microsoft has invested a ton of money in insuring its success," said independent Silicon Valley analyst Rob Enderle.

"If Yahoo! goes under or is bought by a competitor, it is a loss for Microsoft."

Speculation that Yahoo! might opt to merge with fellow fallen Internet star AOL buzzed online and in public forums.

After Bartz replaced co-founder Jerry Yang as Yahoo! chief, Microsoft signed a deal for its search engine to handle queries at Yahoo!, helping Bing gain ground on rival Google.

But the company has still failed to capitalize on its huge Web presence, and while Google's stock has soared, Yahoo!'s has sunk, dropping as low as $11.09 one month before the board ousted Bartz in a rift over its direction.

Alibaba is 43 percent owned by Yahoo! and is considered one of its best assets, but the relationship between the two was strained earlier this year in a dispute over Alibaba's online payments platform Alipay.

Yahoo! was reorganizing its US sales force and remained focused on distinguishing its online properties with rich content personalized to visitors' tastes.

Yahoo! earlier announced an alliance with ABC News to create a digital news powerhouse.

Yahoo! News is the top online news destination in the United States with some 80 million unique visitors a month, while ABC News online pulls in around 20 million.