Yahoo! Shares Powered by Panama

More so than any immediate financial performance, investors in Yahoo! are now expressing renewed faith in the company's ability to deliver on its massive base of technology-oriented media assets, led by the new Panama ranking system. Despite losing almost a third of its value in 2006, Yahoo! is no value stock and trades at a hefty forward earnings multiple of 49, as compared with Google's 36.

"In our view, investors are placing a bet that Panama will improve the growth of the business, not for just twelve months, but on a long-term basis," wrote Stifel Nicolaus analyst Scott Devitt in a research note on Wednesday. Stifel Nicolaus makes a market in Yahoo! shares.

Panama didn't provide the only glimmer of hope, however, as Yahoo's quarter included a strong showing for display advertising, where Yahoo! remains the undisputed leader. Revenue from the top 200 U.S. advertisers was up almost 30% in the quarter, with even the financial services sector -- where Yahoo! had seen third-quarter weakness -- showing growth.

Yahoo! also was upbeat about its beefed-up forays into social media, with existing properties like Yahoo! Answers and Flickr having strong showings, and recent acquisitions including Bix and MyBlogLog registering solid performances under the Yahoo! banner.

Investor sentiment that help for the top line may be on its way offset the company's uninspiring revenue outlook, which called for revenue excluding traffic acquisition costs of $1.1 billion to $1.2 billion for the first quarter and $4.95 to $5.45 billion for 2007.