The firm set a $35 price target on Yahoo!, saying the new Panama advertising system will help to increase search-advertising revenue.

Edwards also said it believes Yahoo! is well ahead of Google in terms of display advertising and that the company will benefit from higher-priced video advertising to an extent that Google can't, even with YouTube.

Still, the firm put a $550 target on Google, citing the company's current business model, growth in the search and Internet advertising market, and its continued plans for innovation and improved efficiencies.

Separately, Nollenberger initiated coverage of Yahoo! with a neutral rating.

Google was down 0.4% at $462 in premarket trading, and Yahoo! was slipping 0.3% to $31.45.