* Q3 net profit down 16 percent, revenue down 23 percent
* 38 pct of Q3 revenue came from Yahoo, 37 pct from Google
* Names CFO as new CEO (Adds Q3 results, new CEO)
By Steven Scheer
JERUSALEM, Nov 11 Shares in translation software provider Babylon rose as much as 25 percent on Monday after Yahoo said it would maintain a cooperation agreement that accounts for a big chunk of the Israeli firm's sales.
Yahoo signed a four-year deal with Babylon earlier this year under which the two firms would share revenue from advertising. But last month Yahoo said it found violations in the agreement and Babylon promised to fix the issues.
"Due to the pro-active actions taken by (Babylon), Yahoo does not intend to suspend or cancel the agreement," Babylon said in a statement to the Tel Aviv Stock Exchange on Monday.
The Haaretz newspaper said the dispute had stemmed from Babylon having moved Internet display ads to spots already allocated by Yahoo to other advertisers.
Babylon said it would operate additional monitoring mechanisms to ensure similar incidents would not reoccur and that it would resume acquiring new users in careful coordination with Yahoo.
The company also reported on Monday a 16 percent drop in third quarter profit to $6.3 million. Yahoo accounted for 38 percent of Babylon's third quarter revenue of $43 million, which was down 23 percent from a year earlier.
Babylon's shares were up 15.7 percent in afternoon trade in Tel Aviv, after rising as much as 25 percent.
The company also had a cooperation deal with Google , which accounted for 37 percent of its revenue in the third quarter. But in late October Google said it did not plan on renewing the deal after receiving a large number of complaints that the Israeli company's software did not work well with Google's Chrome browser.
This sent Babylon's shares down more than 60 percent.
The stock has since recovered some 40 percent including Monday's rise. Its market value has bounced back to 534 million shekels ($150.89 million) from 363 million on Oct. 30, but it is still well below a value of 981 million shekels prior to Google's announcement.
Babylon also said Shanit Pe'er Tsfoni, Babylon's chief financial officer, would become chief executive officer, replacing Alon Carmeli, who previously had announced his intention to step down.
The company has had a turbulent few months. In October, Babylon said it was in advanced talks to merge with software distribution firm ironSource but these talks have been broken off for the time being. In September, it had dropped plans to list in the United States to pursue the ironSource talks.
Noam Lanir, Bablyon's chairman and controlling shareholder, said: "We are dealing today with changes in the business environment and are examining the consequences and alternative actions for the company." He did not elaborate further. ($1 = 3.5390 Israeli shekels) (Reporting by Steven Scheer; Editing by Greg Mahlich and Jane Merriman)