Good news for Yahoo; not so for Microsoft?

Yahoo Inc., seeking to prove it's worth more than Microsoft Corp.'s takeover bid, yesterday reported its first profit increase in more than two years on a gain from an investment.

First-quarter net income rose to $542.2 million, or 37 cents a share, from $142.4 million, or 10 cents a share, a year earlier, the Sunnyvale, Calif., company said in a statement. Sales, excluding revenue passed on to partner sites, rose to $1.35 billion, beating analysts' average estimate.

The results may shore up efforts to squeeze a higher offer from Microsoft, which threatened a proxy fight and perhaps a lower price if Yahoo does not agree to a deal by this weekend. Since rejecting the bid Feb. 11, Yahoo has talked with News Corp. and Time Warner Inc. about combinations and agreed to test rival Google Inc.'s search-advertising technology.

Yahoo rose in extended trading. The shares fell 1 cent to close at $28.54 in regular trading on the Nasdaq Stock Market. Since jumping 48 percent Feb. 1, the day of Microsoft's bid, Yahoo shares are little changed. The offer of $31 a share in cash and stock was 62 percent higher than Yahoo's close the previous day.

Buying Yahoo would help Microsoft, the biggest software-maker, challenge Google in the $41 billion online-advertising market, more than half of which comes from Web searches. Google captured 59.8 percent of U.S. queries in March, compared with 21.3 percent for Yahoo and 9.4 percent for Microsoft, said comScore Inc.