SAN FRANCISCO - Yahoo!'s

( YHOO) answer to realizing more value in its business is to slash its workforce by 10%.

That may be fine for now but the question investors will be asking is: What else do you have?

Yahoo! shares received a bounce after it posted third-quarter earnings Tuesday that were in line with Wall Street estimates, although revenue fell short of expectations. The stock continued climbing on Wednesday, up 4.9% to $12.66 in recent trading.

The company said it would cut more than 1,500 positions from its global staff by the end of the year, which will result in a savings of $400 million.

But Yahoo! offered little else of what it intends to do to increase the value of its business going forward. The company's shares are down 63% from their 52-week high and many investors are still grumbling over a failed merger deal with Microsoft ( MSFT), which had offered as much as $33 a share before negotiations collapsed.

Jeetil Patel, an analyst for Deutsche Bank, raised questions as to where Yahoo! expects to grow, especially when benefits seen from tweaks to its ad platform, Panama, as well as market rate pricing changes, which remove the minimum bid for sponsored search keywords, appear to be fading.

"Prospects for incremental monetization gains ahead don't appear quite clear to us," he wrote in his research.

Patel maintained a hold rating on Yahoo!, noting that its underlying growth and margin story is now facing pressure, along with its legacy business strategy.

"The third-quarter financial performance at Yahoo! clearly underscores that the company's long-term business strategy remains largely unchanged relative to years past, and is unlikely to change looking ahead," he said. "For the most part, Yahoo! remains committed to its portal strategy, along with modest syndication elements for display ads.

"While such an approach made sense at least five years ago and prior, we think the company continues to miss the mark as it relates to creating and tailoring Web services for particular Internet audiences (especially younger demographics)."

Yahoo! has actually seen strength in revenue from its owned and operated search ads, which climbed 17% in the third quarter. That compared to only a 3% growth in its display ads, with particular weakness in the premium business, where advertisers are scaling back as a result of the economic downturn.

But Yahoo! remains heavily invested in display ads, which make up the bulk of its ad mix. And it has already shown that it cannot effectively compete against Google ( GOOG), the dominant force when it comes to the search-ad business.

Google last week managed to top Wall Street estimates precisely because of its effectiveness in the search business.

Darren Chervitz, director of research at the Jacob Internet Fund, which has a position in Yahoo!, says that premium display ads are falling out of favor, and not just because of the economy.

"I do think that is a big risk and it won't necessarily come back when the economy comes back," he says, noting that advertisers are increasingly shifting to targeted ads that cost less than display ads. Not only that, but the technology for targeted ads is improving over time, giving advertisers more incentive to invest in that area instead of in display.

Nonetheless, Chervitz says that Yahoo! is doing all it can to optimize performance and sees very few growth drivers for the future.

"I don't think there are any in this environment," he says. "The sectors that have had strong advertising on the Web have been hurting."

He does fault Yahoo! for touting an unrealistic three-year growth plan back in March, in which the company claimed it would increase its cash flow to $3.7 billion from $1.9 billion by 2010 and generate $8.8 billion in revenue, excluding traffic acquisition costs.

Chervitz says it was clear even then that the economy would not hold up and that creating such a plan "bordered on irresponsibility."

As for the job cuts Yahoo! has proposed, Chervitz says there is far more fat for it to trim. He noted the 1,000 positions eliminated by the company earlier this year were negated by unrelenting hiring.

"Ten percent is a relatively shallow move," he says of the new reduction. "I think they can go deeper and I think they probably will" if Yahoo!'s financials don't improve.

The one hope that still lingers for Yahoo! is a search deal with Google, which the two companies hammered out this summer. Yahoo! agreed to outsource some of its online ads in the U.S. and Canada in exchange for a slice of the revenue. But the arrangement faces scrutiny by the U.S. Justice Department, as well as the European Commission, and it is unclear if either will try to challenge it on anti-trust grounds.

Another possibility is a renewed deal with Microsoft, but that too appears shaky. Last week when Microsoft Chief Executive Steve Ballmer ignited speculation of another merger when he said that a deal with Yahoo! could "make sense economically," the company immediately issued a statement saying that the two sides were not in talks and that Microsoft was not interested in an acquisition.

Youssef Squali, an analyst for Jefferies & Co., wondered whether activist investor Carl Icahn would use Yahoo!'s third-quarter results to kick up a storm. Icahn had organized a proxy battle against Yahoo! earlier this year after the company resisted efforts to merge with Microsoft. As part of a compromise, he secured three seats on Yahoo!'s board, including one for himself.

"(Yahoo! CEO Jerry) Yang's top priority is how to get Yahoo! through this economic meltdown with minimum scarring and maximum positioning for when the economy turns; Icahn isn't that patient and his top priority seems to be maximizing shareholder value now," Squali said.

A possible compromise would be a major stock buyback or a spin-off of Yahoo!'s Asian assets, Squali said. But Yahoo! has already said it expects to be conservative during a down economy so a buyback might not happen anytime soon.

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