Shares of Yahoo! zoomed after a Lehman Brothers analyst published a note encouraging investors to "jump back in" to the stock.
Lehman's Holly Becker raised her rating on the stock from "market perform" to "buy" and set a price target of $20.
"Much has changed in recent months: estimates have again come down, we are beginning to see management changes and the stock is down another 71 percent from its 2001 high," she wrote. "We now ask ourselves again, is it time yet? WE THINK IT IS!"
Shares were up 23 percent, or $2.94, to $15.38 in morning trading. Yahoo!'s stock has plunged from a 52-week high of $173, including a 71 percent dip since January. Last month, the company warned investors its revenue would fall well below expectations and announced the departure of chief executive Tim Koogle.
Yahoo! is scheduled to release first-quarter results 11 April. Analysts are expecting a breakeven quarter, with revenues coming in at around $172m, according to First Call.
And not all analysts are as bullish as Becker -- Jefferies & Company analyst Frederick W Moran, who maintains a "hold" rating on the stock and a $10 target price, said in a recent note that "with increasing uncertainty, no visibility on financial projections, as well as senior management concerns, we believe Yahoo!'s stock likely will see further downside near term."
Becker's hardly a dot-com cheerleader. The analyst was one of the first to jump off the Amazon bandwagon, and recently issued a pessimistic report about eBay.
But Becker did offer plenty of qualifiers for her optimism on Yahoo.
"We recognize that we may be a bit early and that this may not be the absolute bottom for Yahoo's earnings or even its stock price," she wrote. "However, if we wait for evidence of a turn-around it will almost certainly be too late. We are now convinced that the worst is over and that the risk-reward on the shares is favorable for investors with a longer-term horizon."
Becker said that with the upcoming changes in management, the company should be in a position to overhaul many of its business practices. And while she outlined many potential problem areas, she also highlighted a few areas the company can work on to boost the bottom line: improving its advertising offering, lowering expense bases, charging for premium services and charging for placement on its channel pages.
Marketing and sales expenses, currently at around $445m have "room to come down as does their cost of sales", Becker said. She hinted that the company may need to lay off workers, something Yahoo! has so far managed to avoid.
Charging for premium services -- a concept the company has recently begun to test with a fee-based real-time stock quote service -- should also help boost the bottom line. Becker estimated that if Yahoo! could get 5 percent of its users to pay $10 a month for services, that would boost earnings by 33 cents per share.
Charging partners for placement on the company's channels could also bring in some bucks, Becker said. Yahoo! recently began partnering up on some of its channels, including deals with Headhunter.net and Travelocity, and Becker said that more deals would help boost revenue while lowering internal development costs.
Looking forward, Becker said she expects the company to report revenues of $170m for the first quarter, with earnings coming in at breakeven. She sees the second quarter hitting the trough, with sales of $150m and a loss of 2 cents per share.
For the full year, Becker said she expects revenues of $700m and breakeven earnings.
She based those figures on a 35 percent growth in Yahoo!'s business segment, which Wednesday signed a deal with SAP to develop portal sites. Becker said she expects dot-com advertisers and pure-play e-commerce partners to account for only 14 percent of revenues, while traditional advertisers will account for 35 percent of total sales.
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