When Citigroup Smith Barney analyst Lanny Baker cut his rating on Yahoo! ( YHOO) last week, he got a lot of attention for standing out from the crowd.

But when it comes to how he expects the company's stock to perform, he actually has a lot of company.

Shares in Yahoo!, which is set to report second-quarter earnings after the markets close Wednesday, have surged since the company reported unexpectedly good first-quarter results.

While the run-up inspired Baker to downgrade Yahoo! on valuation concerns -- a move that helped spark a retreat in Yahoo!'s stock price -- the majority of analysts writing on Yahoo! in recent days have been more bullish on the stock, keeping or even raising their positive ratings. They argue that the growth in Yahoo's revenue and earnings, supported by the Internet advertising comeback, justifies even further appreciation in the company's stock.

And yet most of those analysts have target prices for Yahoo! at or below Baker's $36. Notably, Baker raised his goal for Yahoo! shares, from $33, even as he cut his rating from buy to hold. (Baker is long Yahoo! stock; his firm has done recent non-investment banking services for Yahoo!.)

The debate over Yahoo!'s valuation -- whether its price/earnings ratio of 100 (based on 2004 estimates) is borne out by such factors as the 36% earnings growth expected for 2005 -- is awfully reminiscent of the situation during the turn-of-the-century dot-com bubble.

Back in early 2000, when Yahoo! was peaking above $100 on a split-adjusted basis, the belief -- subsequently disproved -- was that the online advertising market had nowhere to go but up.

Following the burst of the earlier bubble, a more reasoned optimism has returned to the Internet advertising market. The new wave has been driven by the growing popularity of pay-per-click search advertising and that advertising medium's adoption not by fledgling e-tailers but by Old Economy heavyweights.

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