Yahoo Inc posted quarterly earnings that topped Wall Street targets, and its shares rose more than 3 percent as Chief Executive Carol Bartz said the number of users and time spent at Yahoo sites rose from a year ago.

Yahoo is one of the most popular destinations on the Web and the No. 1 provider of online display ads in the United States, but the company is facing increasing competition from social networking service Facebook and continuing pressure from search leader Google Inc.

Yahoo said it earned $223 million in net income, or 17 cents a share, in the three months ended March 31 compared with $310 million, or 22 cents a share, in the year-ago period.

Excluding charges related to investments in Japan, Yahoo earned 19 cents per share, comfortably topping the 16 cent average of analysts polled by Thomson Reuters I/B/E/S.

Net revenue, which excludes fees paid to partner websites, was roughly $1.064 billion, squeaking past the $1.055 billion average of analyst expectations but falling 6 percent from $1.13 billion a year earlier.

Looking forward, Yahoo projected net revenue between $1.08 billion and $1.13 billion in the second quarter. Analysts were looking for $1.1 billion.

A deal for Microsoft Corp to manage Yahoo's search advertising is key for Yahoo's future, and Bartz on a conference call said that revenue per search was less than before the Microsoft deal.

Revenue per search won't rise to pre-Microsoft levels until the end of the year, compared with a previous forecast of mid-year, she added.

She also said Yahoo would hold off moving more paid search markets to its partnership with Microsoft, while Microsoft addressed some issues with its technology.

Shares rose to $16.52 following the earnings report, after ending at $16.12 in Nasdaq's regular session.

(Reporting by Alexei Oreskovic; Editing by Gary Hill, Bernard Orr)