NEW YORK ( TheStreet) -- Yahoo! ( YHOO) CEO Marissa Mayer had a lot to prove going into last night's earnings report. While the company's 2% revenue growth isn't going to break anyone's bank, it's a sign that Mayer and Yahoo! are heading in the right direction, which is more than be said for the company's prior regimes. For the first time in four years, Yahoo! reported an annual revenue increase, with sales increasing 2% year-over-year. The company also beat analysts' expectations, which helped send shares higher. On a non-GAAP basis, Yahoo! earned 32 cents a share on $1.22 billion in revenue during the fourth quarter. Yahoo! revenues exclude traffic acquisition costs (TAC). Analysts polled by Thomson Reuters were looking for earnings of 28 cents a share on $1.21 billion for the quarter. While much of the attention has been focused on Yahoo!'s share price, which is up almost 30% over the last 12 months, the company's core business is actually starting to turn around, albeit slowly. Search and display, for example, generated $947 million in sales during the quarter, up 2.7% year-over-year. Search was the primary driver here, with revenue climbing 14% year-over-year to $427 million. Wells Fargo analyst Peter Stabler noted that paid clicks grew 11%, with cost-per-click (CPC) growing 1%. "It appears that ongoing improvements to Yahoo! search user experience is yielding incremental gains as paid clicks grew a healthy 11%, with CPCs posting respectable 1% growth," Stabler wrote in his note. CPC growth of 1% was strong compared to Google ( GOOG). It should also be noted, however, that Yahoo! may not be making headway in mobile search, something which has plagued rival Google for some time. Mayer and her team would not break out mobile results, saying only that it's a work in progress. Mayer spent a large portion of the conference call talking about projects that have been fixed (Flicker!) or need fixing, identifying a dozen properties that are in the works. It seems as if Yahoo! Finance and Yahoo! Sports, two of Yahoo!'s most visited properties, will be beefed up in the near future, though Mayer would not divulge specific projects when pressed by analysts.
First-quarter guidance was a little conservative, though it's clear that Yahoo!'s headed in the right direction, albeit slowly. For the first quarter, Yahoo! expects to generate between $1.07 billion and $1.1 billion in revenue. "On a fundamental level, Yahoo! still has significant room to improve and while some trends in search have been encouraging, display, which we continue to view as the most important segment at Yahoo!, remains disappointing and trends worsened in Q4," wrote Piper Jaffray analyst Gene Munster in a research note. Munster believes Yahoo!'s stock may react positively over the next few months, but the fundamental story is lagging behind the share price. He rates Yahoo! "neutral" with a $21 price target. Executing a Yahoo! turnaround is not an easy task for Mayer. She had no previous experience of turning round a company as big as Yahoo! I believed she was the wrong choice for the job, when she joined Yahoo! from Google. Since taking over in July, Yahoo! has been able to monetize some of its Asian assets (part of its Alibaba stake), returned some of that cash to shareholders in the form of a buyback, and still has a lot of dry powder left for tuck-in acquisitions and research and development. Yahoo! ended the quarter with $6 billion in cash and cash equivalents, aided by the partial sale of its Alibaba stake. During the quarter, Yahoo! bought back 80 million shares for $1.5 billion. Mayer identified four big keys to monetization: search, display, mobile and video. On the call, she noted video is the hottest part of the business, with some advertising sold six months in advance, but said that mobile is where she intends to really focus. If Mayer hopes to compete with the likes of Google, Facebook ( FB) and others for mobile eyeballs, she certainly has her work cut out. By no means should Mayer take a victory lap - she's only been at the helm for one full quarter, and the company still has plenty of work left to do. Key initiatives include continuing to monetize Yahoo!'s Asian assets ( Yahoo! Japan and Alibaba), and becoming relevant again for domestic advertisers and consumers minds. The company is still in a "show me state," but for now, Mayer and her team have silenced some of the critics, including me. We'll all be watching to see if there's more to this story. Interested in more on Yahoo!? See TheStreet Ratings' report card for this stock. -- Written by Chris Ciaccia in New York >Contact by Email. Follow @Commodity_Bull