Wall Street Roars Approval for Yahoo!

Slabin raised estimates but kept his neutral rating on the stock, saying the upside surprise is already reflected in the higher stock price.

Credit Suisse First Boston's Heath Terry, meanwhile, raised his 12-month price target on Yahoo! from $57 to $65.

"While every revenue line outperformed, Marketing Services drove the bulk of the upside," wrote Terry. "Excluding acquisitions, marketing services growth was 48% y/y. We believe this is the result of a significant improvement in the traditional online advertising market, as well as continued growth in sponsored search."

Terry has an outperform rating on the stock; his firm has done banking for Yahoo! in the past 12 months.

Rug Burn

As for Google's experimental free email service, Gmail, Decker suggested that Gmail's most attractive feature -- 1-gigabyte storage capacity -- wouldn't pull the rug out from under Yahoo!'s free email service, currently offered with 4 megabytes of storage space.

Storage, she said, is only one of several things that users are looking for in email. The others, she suggested, include security, trust, privacy, reliability and common registration with other services.

As an indication of how storage capacity is one element, she said that though premium email users can purchase extra storage capacity by itself, they often bundle it with other advanced services.

"At the moment, we feel like we have a pretty strong offering," Decker said, "and it's based on listening to consumers for a number of years."