Updated from 3:53 p.m. ET

Yahoo!

(YHOO)

announced progress on a corporate services initiative Tuesday, but the news isn't likely to distract attention from the online advertising angst likely to be in the spotlight when it reports earnings this week.

The Internet bellwether, slated to kick off the Net earnings-announcement season after Wednesday's close of regular trading, says the

Corporate Yahoo!

portal it unveiled last June has landed a total of 18 customers -- including

McDonald's

(MCD) - Get Report

and

Bayer AG

(BAYZY)

-- covering a total of 800,000 employees.

Yahoo!'s update on its corporate business comes as some investors, who've watched the stock get battered by the advertising downturn on the Internet and in other media, are rooting for Yahoo! to find opportunity beyond the ad dollars that dominate the company's revenue. Though Yahoo! is profitable, worries about growth have stricken the company's stock price, sending it down from a 52-week high of $225.63 to a level less than one-seventh of that price. The stock closed Tuesday up $2.94, or 11%, at $30.13.

The idea of Corporate Yahoo! is promising: Companies can improve the utility of, traffic to and popularity of their corporate networks by taking their intranets -- a place where employees can go online for sales and customer information, a corporate directory or health insurance forms -- and customizing it as a modified version of Yahoo!. The situation would be not unlike a company that, instead of building a fast-food stand for employees from scratch, contracted with, say, McDonald's to build an on-site Mickey D's.

Presence

John Willcutts, general manager of Yahoo! Enterprise Services, says the new venture is building on the widespread presence the portal already has in corporate America; Yahoo! reaches 70% of corporate users, he says. That penetration not only makes companies more receptive to Corporate Yahoo!'s sales pitch, but also corporate users receptive to using the new service. The balance between work and home life has been blurred, Willcutts says: "It's both all the time." Corporate Yahoo! is "a natural extension of what we already do."

Despite the new venture's connection to Yahoo!'s pre-existing business, Willcutts says the company is aware that the process of selling software and services to businesses is different than selling online advertising, which is why Corporate Yahoo! has recruited people with experience selling or installing enterprise software. "We're building a slightly different type of Yahoo! to sell this product," he says.

Willcutts won't discuss how soon the revenue involved might be material, but he says Yahoo! believes it already has a critical mass of customers. "There's no question this is a real business we're going to be successful at," he says.

But if there's significant money in Tuesday's announcement for Yahoo!, it's unlikely to show up any time soon, says Derek Brown, an analyst at

WR Hambrecht

.

Down the Road

"I don't doubt that it's positive news," Brown says. "They're clearly making progress, and they've signed up some very large customers in reasonably short order. But at the same time, this product is likely to remain a very small portion of the company's overall revenue stream, certainly for the next one to two years." (Brown, whose firm hasn't done underwriting for Yahoo!, has a neutral rating on the stock.)

The overwhelming issue for Yahoo! remains the state of the advertising market, Brown says. Somewhere between 80% to 90% of Yahoo!'s revenue comes from advertising, Brown says; even if it falls to 60% over the next two years, it will still be a disproportionate part of its revenue. "The overall health of the advertising market is critical to Yahoo!'s success."

As a result of the soft advertising market, Brown says that for some time he has been expecting Yahoo! to guide down estimates for 2001. It's a situation far different from how things were when he started covering Yahoo! more than three years ago. It used to be that each quarter Wall Street asked the questions, "By how much will Yahoo! beat expectations?" and "How much will estimates be increased by?" Says Brown, "The questions now are, 'Will Yahoo! meet expectations?' and 'How much are projections coming down by?' "