Updates Yahoo!'s stock price

Internet giant Yahoo! ( YHOO), which beat Wall Street's second-quarter estimates Tuesday, is gearing up for a marketing onslaught in an attempt to boost its brand awareness and challenge Google ( GOOG).

The Sunnyvale, Calif.-based firm, which launched a revamped homepage earlier this week, is planning a major rebranding exercise, according to CEO Carol Bartz.

"We are hard at work on plans to reposition our most valuable asset, Yahoo!'s brand," she said. "Our Q3 plans include an initial wave of incremental marketing spend which will increase substantially into Q4 and next year."

The company will now be "re-architecting and globalizing" its products to make them more open, scalable, and mobile-friendly, said Bartz. "We will make it easier to distribute our content anywhere it needs to be around the world," she said.

Yahoo! also wants to boost the relevancy of advertisements linked to its search business, as well as display ads on its Web pages. This could mean reducing the frequency of some ads and potentially eliminating others, according to Bartz.

Revenue from Yahoo!'s owned and operated search business came in worse than analysts had expected, falling 15% year over year, compared to Jefferies & Company's estimate of a mid single-digit decline. The company's display business dipped 14% year over year, but was slightly up sequentially.

The firm is now planning to hire additional sales people and engineers to support its branding efforts, although Youssef Squali, an analyst at Jefferies & Company, thinks that this should be taken in context.

"Weaker search and the need to increase investments in the second half of 2009 are negative short-term," he wrote, in a note released Wednesday. "Cost containment, improved margins and sequential improvement in display was the story out of the second quarter."

Yahoo!'s new CFO Tim Morse described his goal of long-term margin expansion during the conference call, and explained that the firm is now rebuilding itself after a major restructuring effort.

"I think the company did all the right things, drained all the right buckets," he said. "Now we are filling back up different buckets -- we are taking our time to make sure the investments are going to the right places."

What part Microsoft ( MSFT) plays in Yahoo!'s future, however, remains to be seen, despite recent rumblings of a possible search dealbetween the firms. The software giant was mentioned briefly during the call, when an analyst asked Carol Bartz about Microsoft's newest search offering, Bing.

"Bing is a good product," she replied, adding that Microsoft should be given Kudos for developing it. "Unfortunately it is only a month into it, so it is pretty hard to understand whether it is just curiosity driving what is happening or they are actually going to gain share."

Bartz's comments could nonetheless be interpreted as a thawing in the relationship between Yahoo! and Microsoft, which launched an unsuccessful $47.5 billion bid for the search giant last year. With a new Yahoo! homepage and all the Bing buzz, now would be a good time for the firms to team up, according to Jefferies & Company's Squali.

"We view Yahoo!'s positive front-page redesign as complementary to Microsoft's early success with Bing, and conducive to a partnership," he wrote. "We continue to believe that a swap deal between Yahoo! and Microsoft for search and display would be a win/win for both companies."

Yahoo! shares were up 53 cents, or 3.2%, to $17.28 Wednesday, while the Nasdaq gained 0.4%.

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