• Business Week, Wednesday, January 24, 2007 11:33 AM

All in all, the news from Sunnyvale was good: Yahoo's fourth-quarter sales rose 13%, but the 19 cents per share profit beat analyst's expectations by 7 cents. However, the Web giant's tepid 14% sales growth initially sent the stock down. But then CEO Terry Semel came on the call and announced that the full-scale commercial roll out of Project Panama, Yahoo's new search advertising system, was running a month ahead of schedule.

That news solidified investors' belief that the worst must now be over for Yahoo, and the stock shot up more than 5%. Panama is supposed to close the giant sales gap that exists between Google, the Web's No. 1 search engine, and Yahoo, the No. 2, by deploying criteria other than bid price in determining paid search rank. This should elicit more clicks from users.

After a 35% nosedive in 2006, Yahoo is up 7% for the year so far, in part, to Panama-related optimism, but will a new search ad system be enough to steady a ship that's built on a varied business model? Search is just one part of Yahoo.

Indeed, Semel said 2007 should be a "transition" year (often a euphemism for "bad"), and investors shouldn't expect more than 8% growth for the first quarter, Panama will only incrementally affect sales growth this year.

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