Yahoo profit soars following the Alibaba IPO

Yahoo can't hide behind Alibaba anymore.

The Web giant's profit soared in the third quarter, after earning $6.3 billion from selling part of its stake in Alibaba (BABA, Tech30), the Chinese e-commerce giant. Alibabadebuted last month on the New York Stock Exchange in the largest IPO in Wall Street history.

Yahoo (YHOO, Tech30), whose stock had been buoyed by the pre-IPO hype, has already committed to returning at least half of that money to shareholders.

Yet the company's core advertising business has been unimpressive in recent years, putting pressure on CEO Marissa Mayer to prove that Yahoo can be more than just an Alibaba proxy for investors. A manager of the activist hedge fund Starboard Valuerecently called for the company to merge with AOL (AOL, Tech30).

On Tuesday, Yahoo might have shown just enough to keep investors at bay -- at least for three more months. Yahoo's third-quarter earnings -- excluding the benefits of the Alibaba sale -- came in well ahead of expectations, and shares rose 3.5% in after-hours trading.

Yahoo's remaining Alibaba stake is worth approximately $34 billion. The company will pay $3.3 billion in taxes on its recent sale of shares, and going forward, Mayer said Yahoo has "the best tax experts in the country working intensively on structures to maximize the value for shareholders of our remaining stake."

Excluding Alibaba and other one-time items, Yahoo said it earned 52 cents per share last quarter, well ahead of Wall Street analysts' median estimate of 30 cents, according to a survey conducted by Thomson Reuters.

Yahoo's sales, grew 1% to $1.1 billion, slightly ahead of analysts' expectations. The company also reported a solid 6% increase in search revenue, but sales of the more lucrative banner and video ads fell by 5%.