Many of the headlines behind this week's launch of Microsoft's (NASDAQ:MSFT) Bing search engine seem awfully similar:

  • Microsoft Aims Big Guns at Google -- Advertising Age
  • Microsoft Effort to Best Google Yield Results -- The Wall Street Journal
  • Does Bing Ding Google? -- PC Mag

But are these headlines overlooking another important rival? Before Microsoft can topple Google (NASDAQ:GOOG) in search, it has to get past Yahoo! (NASDAQ:YHOO). After all, Microsoft is a distant third in this particular race.

With a new CEO at the helm, Yahoo! isn't exactly standing still. Carol Bartz has been shuffling executives, playing God with fledgling divisions, and refreshingly taking chances at a company that had been complacent for way too long.

Investors are starting to notice. The stock is up 86% since its November low. Yahoo! also received an analyst upgrade from Barclays Capital this week. Claiming that Yahoo! has "a renewed sense of innovation" after previewing a landing-page makeover, the analyst is bumping up his price target from $15 to $20.

This doesn't mean that it's still safe to raise the "We're a comfortably distant No. 2" foam finger. Yahoo!'s fundamentals have yet to catch up to its share price:

  • Analysts still see this year's earnings and revenue sliding 22% and 12%, respectively.
  • The market has rallied over the past three months, but in that time, Wall Street has taken down Yahoo!'s profit targets for 2009 and 2010. To be fair, they have done the same thing with Microsoft, and Google.
  • Defections still continue at Yahoo!. That may have been a good sign at the beginning, but not now, when Bartz has a clearer plan in motion.

So is Yahoo! cruising for a bruising? I don't think so. You won't see Yahoo!'s stock back in the single digits, unless we get a paralyzing bear-market sell-off. Even the same jaded analysts see Yahoo! growing again in 2010. It only helps that the company has met or exceeded profit expectations in each of the past three quarters.

You also have to like Yahoo!'s cash-rich balance sheet and buoyant share price in an environment ripe for acquisitions. It can gobble up smaller companies like IAC (NASDAQ:IACI), Internet Brands (NASDAQ:INET), or even Time Warner's (NYSE:TWX) AOL, which haven't seen similar share-price increases since November's lows.

Yahoo! may not be growing again, fundamentally, but it certainly appears to be bottoming out. And if it does start to rebound, the upside could be huge from here.

The world according to Yahoo!:

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Longtime Fool contributor Rick Munarriz thinks that a Microsoft-Yahoo! merger will inevitably happen before the end credits roll. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.