SAN FRANCISCO (REUTERS) - Yahoo Inc's net revenue dipped slightly in the third quarter as prices for its display ads remained under pressure.

Yahoo shares were up 16 US cents at US$33.54 (S$41.75) in after market trading on Tuesday after initially rising more than 4 per cent.

Yahoo also announced it would sell fewer shares than originally agreed with Alibaba Group Holding Ltd when the Chinese e-commerce company goes public.

That means Yahoo, which owns a 24 per cent stake in Alibaba, will reap more gains if Alibaba's stock surges after the initial public offering (IPO), said Mr Ben Schachter, an analyst with Macquarie Research.

"The idea is you don't want to have to sell at the IPO price, you want to sell later to potentially get the appreciation going up," he said.

Yahoo's core business of selling online display and search advertising continued to struggle in the third quarter, Mr Schachter said, as the company faced fierce competition from Facebook Inc and Google Inc.

Prices for Yahoo's display ads declined 7 per cent year-over-year, while the number of display ads sold increased roughly 1 per cent, Yahoo said.

The Web portal reported US$1.081 billion in net revenue, which excludes fees paid to third-party websites, in the three months ended Sept 30, compared with US$1.089 billion in the year-ago period. The average analyst expectation was for net revenue of US$1.082 billion according to Thomson Reuters I/B/E/S.

Yahoo said it earned US$297 million in net income in the third quarter, or 28 US cents a share, compared to US$3.16 billion, or US$2.64 a share in the third quarter of 2012, when Yahoo's results included a US$2.8 billion gain from the sale of a portion of its stake in Alibaba Group.

Excluding certain items, Yahoo said it earned 34 US cents per share, a penny above the average analyst estimate.

Yahoo's shares have risen roughly 70 per cent since the start of the year.