Summary:

The market liked what it heard from Yahoo (NSDQ: YHOO) Tuesday, as the stock added more than 7 percent in trading Wednesday. However, the co…

The market liked what it heard from Yahoo (NSDQ: YHOO) Tuesday, as the stock added more than 7 percent in trading Wednesday. However, the company has more to do to convince analysts, who aren’t ready to jump on board after one decent quarter.

Jeff Lindsay, analyst, Bernstein: “We think management’s reported improvements in paid search are unsustainable.” In his client note, Lindsay, who has been quite vocal on Yahoo, argues that while things looked good on the surface, there’s still little to get excited over in the numbers. Display advertising did jump in the quarter, but Q306 was extremely weak due to a shortfall related to auto and financial services advertisers, making for an easy comparison. The big gains aren’t expected to carry over into the next quarter, as certain one-time events like big movie ad budgets, won’t be there. Paid search growth of 20 percent is mainly due to comparisons pre- and post- Panama. Once Panama has been around for a few quarters, the pace of gains will level out.

Jallel Patel, analyst, Deutsche Bank: “One quarter does not make a trend,” Patel told clients. While the company did a better job of monetizing its traffic in Q3, there’s no evidence that it will do so again in Q4. In fact, he noted, the company held Q4 guidance steady, even though the acquisitions of BlueLithium and Zimbra are likely to add $25 million in revenue during the quarter.

Jordan Rohan, analyst, RBC Capital (via Dow Jones): “We think the worst is behind Yahoo for now.”

Rob Sanderson, analyst, American Technology Research (via AP) “Things certainly seem to be moving in the right direction… Now the question is can they string a few quarters like this in a row?”

Staci adds: Got a good query from Terry Heaton wondering what was said about the newspaper consortium during Tuesday’s call. Short answer: Not a whole heck of a lot. CEO Jerry Yang said the newspaper partners will “among the first to benefit” from its “highest priority area of investment” — “building a scalable monetization platform across display advertising to supplement and ultimately integrate with our search platform.” They need to scale for greater volume, while developing advertising and publishing tools ad management tools that take advantage of Right Media, etc.

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