Yahoo! shares move on Panama


In an unusual twist of fate, Yahoo! shares moved higher after last week's quarterly report. But the direction of the stock had less to do with financial results than with the company's proclamation that its long-awaited Project Panama was ready for prime time.

Panama is Yahoo!'s answer to Google. It's a technology for sorting search ads by way of "quality" and not just by highest bidder, so that ads are more relevant to Internet users and more valuable to advertisers. Thus, Yahoo! can earn more money from them.

"The on-schedule launch of Panama's new ranking algorithm on Feb. 5 is a boost of confidence in terms of Yahoo!'s execution abilities," Jeffries & Co. analyst Youssef Squali said.

Indeed, Yahoo! shares even soared higher in the face of disappointing guidance, something recent investors have become accustomed to, perhaps.

"Guidance fears realized, but Panama on-track," Merrill Lynch analyst Justin Post said.

Yahoo! shares have been slowly climbing off their one-year low of $22.65 for three months. They got a 7% bump the day after last week's earning report and closed Monday at $27.87, still well off the stock's 52-week high of $35.48.

"We view fourth-quarter results as a starting point for more positive sentiment on the stock, with expectations reset and the negative impact of a weaker affiliate network outlook incorporated into Yahoo!'s guidance," said Post, who raised his target on Yahoo! shares $1 to $33.

Project Panama launches only in the U.S. on Feb. 5, then heads for Japan and the rest of the world beginning in the second quarter.

With Panama, bulls hope that Yahoo! will close the gap with Google, which captures about 11 cents per search compared with just 4 cents for Yahoo!

But at Goldman Sachs, analyst Anthony Noto, even in acknowledging the long-term benefits of Panama, downgraded the stock last week and removed it from its "Americas Buy List" because he figures the stock is too close to his $31.50 target.

Noto said that if the stock pulls back to where it would have to improve 25% to make it to his target price, he'd "consider becoming more positive."

Noto went from a "buy" recommendation to a "neutral" on Yahoo! stock.

"Our view on valuation is based on our growth outlook of 15% from 2008-2011, which, even with the expected success of Panama, does not change vs. our prior outlook," Noto said.