NEW YORK ( TheStreet) -- Yahoo! ( YHOO) got a sympathy vote after a pathetic year in turnaround purgatory.

Arguing that Yahoo's business isn't deteriorating as fast as investors might fear, Kaufman Brothers analyst Aaron Kessler upgraded the stock Friday to a buy from neutral.

Display advertising is a bright spot for Yahoo, says Kessler. CEO Carol Bartz's comments at Tuesday's UBS Global Media and Communications Conference indicates that there has been "improvement in display demand and pricing in the fourth quarter," Kessler writes.

After checking with advertisers and industry sources, Kessler has become more optimistic about Yahoo's business of late. He predicts that display ad sales may not fall 9% from year-ago levels, as he originally estimated.

Yahoo shares, which are up 36% this year, rose 1% to $15.68 Friday on the upgrade news.

With the Internet search ad market moving toward a two-party system -- Google ( GOOG - Get Report) vs. Microsoft's ( MSFT - Get Report) Bing -- Yahoo needs display ads like logos, banners, pop-ups, etc., to contribute much more to its total revenue picture.

One encouraging sign came in the most recent quarter when Yahoo's display sales only fell 8% year-over-year, a major uptick from the 14% slide in the prior quarter.

Search revenue, on the other hand, is far gloomier for Yahoo.

In the third quarter, search revenue for Yahoo sites fell a whopping 19%, far more than the 14% drop in the second quarter. This is a troubling trend for the No. 2 search engine.

Yahoo has a pending deal with Microsoft to use the Bing engine. Analysts expect the partnership to be approved early next year. Not only will the outsourcing effort help reduce costs for Yahoo, but buzz surrounding the deal has effectively elevated Bing as a formidable competitor to Google.

In fact, Yahoo's search business has been in a bit of a freefall according to ComScore stats, which show that the site Yahoo's market share fell nearly a full percentage point to 18% from September to October.

It's no wonder the notoriously colorful chief paid special thanks to a big celebrity scandal in the news during her chat with investors.

"God bless Tiger," Bartz said, referring to the explosion of Tiger Woods search traffic over the past two weeks. "It is better than Michael Jackson dying -- it's kind of hard to put an ad next to a funeral," Bartz reportedly added.

The upshot: Scandals, while good for display ads, are very difficult to predict.

-- Reported by Scott Moritz in New York

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