Like a lame-duck governor signing pardons on his way out the door, soon-to-be-ex-Merrill Lynch analyst Henry Blodget issued a bullish report on Yahoo! (YHOO) Friday.

Blodget's parting paean to the survivor of the Internet stock bust, along with other positive year-end news for Yahoo!, boosted the company's shares as much as 6% Friday, leaving it up 13% since the Christmas holiday. Certainly, some investors believe Yahoo! has turned the corner, considering evidence such as the Blodget report, news of a major acquisition and a major uptick in holiday shopping activity on Yahoo!

But, as inevitably happens with any such controversial case, critics likely will question whether Yahoo! deserves such clemency, particularly considering its steep price-to-earnings premium. In Friday afternoon trading, the stock was trading at $18.55, up 4.4%.

High Sign

Blodget, who took a buyout from Merrill and is slated to depart the company at the year's close, on Friday raised his fourth-quarter revenue estimate for Yahoo! to the high end of the $160 million-$180 million range Yahoo! has given analysts for the quarter ending Dec. 31. Instead of the $168 million analyst consensus, Blodget now says he thinks the company will report $175 million in revenue on Jan. 16, when it's slated to report. Fourth-quarter earnings, he says, will likely come in at the consensus figure of a penny a share. Blodget has a buy rating on Yahoo!; Merrill discloses that Blodget or one of its other analysts covering Yahoo! owns its shares.

The analyst's optimism is based on his belief that the online advertising market has stabilized enough for Yahoo! to enjoy a seasonally strong fourth quarter. In addition, he says, a pay-for-placement listing service, launched in November with

Overture Services


, will likely boost Yahoo!'s sales.

The Good Old Days
Yahoo!'s come down a bit from its highs

Meanwhile, investors have other testimony to cite to bolster the belief that Yahoo! has turned some sort of corner.

On Monday, Yahoo! said that sales volume on Yahoo! shopping, in the month between Thanksgiving and Christmas, leaped 86% higher than holiday 2000 levels, though it's unclear how much of that sales volume trickles onto Yahoo!'s revenue line.

On Thursday, online employment firm



accepted a buyout offer of $10.50 per share from Yahoo! -- a price that Yahoo! analysts believe is reasonable. That deal is a major step on Yahoo! CEO Terry Semel's oft-stated yet still-nascent strategy to diversify Yahoo!'s revenue, and it strengthens Yahoo!'s presence in the business services market.

Meanwhile, Yahoo! also disclosed that

SBC Communications


bought a 3% stake in the company from Softbank, Yahoo!'s biggest shareholder. That might be interpreted as cementing the relationship between SBC and Yahoo!, which last month announced an agreement to jointly market high-speed Internet service.

Location, Location, Location

All this being said, Yahoo! remains expensive for a company trying to launch new businesses and in a growth trajectory that's far from clear. The stock is trading at about 145 times Blodget's estimate for 2002 earnings -- a multiple that seemed to make sense a few years ago to a whole lot of investors but seems unrealistic now.

WR Hambrecht analyst Derek Brown, for example, issued a report Friday reacting positively to Yahoo!'s deal to acquire HotJobs. But he's maintaining his neutral rating on Yahoo!, calling the company's valuation "egregious" given the state of its business. WR Hambrecht hasn't done underwriting for Yahoo!.