Yahoo! Inc. (NASDAQ: YHOO)  reported results for the quarter ended September 30, 2012 after the market closed today

Yahoo beat analysts’ expectations revenue in the three months ended in September rose 2% to $1.09 billion, yielding EPS of 35 cents.

Analysts on averaged had been expecting $1.08 billion and 26 cents a share.

Display revenue was flat, year over year, at $452 million, while search ad revenue was better than expected, rising 11% to $414 million.

A $2.8bn gain from the sale of the company’s stake in China’s Alibaba drove up revenues.

Revenue excluding traffic acquisition costs (“Revenue ex-TAC”) was $1,089 million for the third quarter of 2012, a 2% increase compared to the third quarter of 2011.

GAAP revenue was $1,202 million for the third quarter of 2012, a 1% decrease from the third quarter of 2011.

On a GAAP basis, income from operations decreased 14% to $152 million in the third quarter of 2012, compared to $177 million in the third quarter of 2011.

Third Quarter 2012 Revenue Highlights

Display revenue ex-TAC was $452 million, flat compared to the third quarter of 2011.

GAAP display revenue was $506 million, a 1 percent increase compared to $502 million for the third quarter of 2011.

Search revenue ex-TAC was $414 million, an 11% increase compared to $374 million for the third quarter of 2011.

GAAP search revenue was $473 million, a 1% increase compared to $467 million for the third quarter of 2011.

Cash Flow and Cash Balance

Cash flow from operating activities for the third quarter of 2012 was $1,046 million, a 194 percent increase compared to $356 million for the same period of 2011. Excluding a payment of $550 million from Alibaba related to a technology and intellectual property license agreement, cash flow from operating activities for the third quarter of 2012 was $496 million.

Free cash flow was $920 million for the third quarter of 2012, a 273 percent increase compared to $247 million for the same period of 2011. Excluding a payment of $550 million from Alibaba related to a technology and intellectual property license agreement, free cash flow for the third quarter of 2012 was $370 million.

Cash, cash equivalents, and investments in marketable debt securities were $9.4 billion at September 30, 2012 compared to $2.5 billion at December 31, 2011, an increase of $6.9 billion.

During the third quarter of 2012, Yahoo! repurchased 12 million shares for $190 million.

Share of the company were trading up almost 5% after the news at $16.49