Chief executive Carol Bartz said the latest results were a sign the business was returning to an even keel.
Bartz said: "With revenue coming in above our guidance and flat sequentially, we had a solid third quarter that signals our major businesses have stabilised."
Operating costs dropped 18% to $775m, driven by measures including the laying off around 2,000 of its employees in the past year.
The results show that Yahoo!'s owned and operated sites suffered a 15% drop in revenues to $851m, with affiliate site revenues down 6% to $526m.
Search advertising revenue was down 19% and display revenue down 8%, year on year.
The company, which is currently running a $100m global brand repositioning campaign, predicted revenues would rise to between $1.6bn and $1.7bn in the fourth quarter.
Yahoo! this week brought in another agency to work on the US creative for the 'It's You' ad campaign, which was developed by Ogilvy to focus on how Yahoo! helps consumers make the internet more relevant to them.
Yahoo! said Goodby Silverstein & Partners will "assume lead responsibility to take the company's creative, advertising, digital marketing and strategic planning to the next level."