Over the past year, investors have bid up Yahoo! (NASDAQ:YHOO) shares more than 300% in anticipation of a long-awaited pickup in online advertising. Yesterday, they got it.

For the third quarter, Yahoo! reported a year-over-year net-revenue increase of 43% to $356.8 million. Net income jumped 124% to $65 million, or $0.10 per share, beating the analyst estimate of $0.09 per share. Meanwhile, free cash flow improved a healthy 64% to $97.1 million.

In the big news, Yahoo!'s marketing services bounced 48% to $245 million, driven by growth in its sponsored search service. Included in that figure is a 20% increase in branded advertising sales. Yahoo! is the first Internet company to report earnings this season, so this bodes well for others who would benefit from such an upturn, including AOL Time Warner (NYSE:AOL).

It's also a sign of a recovery.

In recent years, as Yahoo!'s business suffered from the downturn in online advertising spending, the company has sought to diversify its revenue sources while monetizing its brand. Thus, fees revenue -- including SBC Yahoo! DSL, Yahoo! Personals, and other premium services -- jumped 38% to $79.4 million. Listings revenues also increased 26% to $32.4 million.

Looking ahead, Yahoo! expects fourth-quarter revenue between $462 and $502 million, reflecting the acquisition of Overture which closed Tuesday. The company said that Overture was in talks with Microsoft's (NASDAQ:MSFT) MSN to "expand a relationship into the future." MSN, which accounts for one-third of Overture's revenue, droppedLookSmart (NASDAQ:LOOK) earlier this week, cutting LookSmart's share price in half.

Yahoo! continues to benefit from the revenue diversification of its business, but there's nothing like a good ol' recovery in online advertising to jump start earnings.

Jeff Hwang can be reached at JHwang@fool.com.