Things are looking up at Yahoo! (NASDAQ:YHOO) these days.

The stock is trading 64% higher than when it fell into the single digits seven months ago. New CEO Carol Bartz is willing to shake up the Internet's leader in page views, and investors are noticing. Bartz was the Barron's cover story over the weekend.

However, before we begin tossing confetti and popping the bubbly, it bears reminding that Yahoo! is more vulnerable than investors probably think. A lot can go wrong.

Let's go over a few of the potential pitfalls.

1. Earnings are still going the wrong way
Turnaround stocks, by their very definition, require improvement. We're not seeing that on Yahoo!'s bottom line just yet. Non-GAAP earnings fell slightly last year, from $652 million to $642 million, and analysts see adjusted profitability taking a bigger hit this year. Even Wall Street's targets for 2010 fall short of what the company earned in 2008.

You don't need bottom-line growth for a stock to gain traction, but a lack of growth does make the job harder. Higher share prices divided by lower net income inflates earnings multiples. There is more to the Yahoo! story than just the bottom line, but the bottom line definitely bears watching.

2. Bing, baby
Microsoft's (NASDAQ:MSFT) Bing is a hit, and that's bad news for Yahoo! on a couple of levels. For starters, Microsoft no longer needs to acquire Yahoo! to gain relevance in search -- but it certainly improves Mr. Softy's negotiating power.

Bing's initial success also threatens to eat into Yahoo!'s market share. The media are focusing on what Bing's success will mean for Google's (NASDAQ:GOOG) search-engine business, but that's a long-term problem. Google is too far ahead of the pack for a rival threat to be taken seriously.

The near term involves who gets awarded the silver medal and who has to settle for bronze. Bing is a legitimate entry, and Yahoo! would suffer if advertisers ever come to see it as paid search's third option.

3. If not Microhoo, then Micro-who?
Even now, Yahoo! still trades at a buyout premium.

Yahoo! shares closed at $19.18 on Jan. 31, 2008, and Microsoft arrived with its eventually rebuffed $31-per-share buyout offer later that night. Today, Yahoo! is trading even lower than its early 2008 share price, but let's bring out all of the search industry's heavy hitters for comparison.

 

1/31/08

6/23/09

Decline

Yahoo!

$19.18

$14.68

23%

Google

$564.30

$405.68

28%

Microsoft

$32.60

$23.34

28%

Google has had its share of challenges over the past year and change, but it's still growing. Yahoo!, on the other hand, has gone the other way. Meanwhile, there isn't much of an explanation for why Yahoo! has retained more of its value than Google and a somewhat steady Microsoft have, if not for the buyout premium that Wall Street has baked into Yahoo!'s stock.

The problem for Yahoo! is that if Microsoft doesn't come a-calling, who will? Google can't. The antitrust regulators would laugh it out of the room. Smaller search engines such as Ask.com parent IAC and portals such as AOL -- after Time Warner (NYSE:TWX) sets it free -- can't open their mouths that wide.

You could argue that eBay (NASDAQ:EBAY) would be a good fit. Both companies have similar market caps. But eBay has its own problems to worry about, and it's in the process of shedding some of its assets, including Skype.

In short, if Microsoft doesn't come back, Yahoo!'s fresh out of suitors. Bartz seems to have the smarts to bail out Yahoo! on its own, but the buyout premium is misplaced. 

4. Only time will tell on Asia
Citi analyst Mark Mahaney pegs a value of $6 a share for Yahoo!'s Asian investments, which essentially consists of its stakes in Yahoo! Japan and China's Alibaba.

That's an attractive price, but it's lower than where it used to be. Citi helped The Wall Street Journal arrive at a price of $10.13 a share for Yahoo!'s investments in Yahoo! Japan and Alibaba shortly after Microsoft's original buyout offer.

This isn't Yahoo!'s fault, of course. The Asian markets have been hit hard. However, if Yahoo!'s investments have fallen faster than Yahoo!'s stock itself, the trading disparity between Yahoo! and its search-engine cronies widens.

5. Draining out the talent pool
Bartz is making the difficult calls to improve Yahoo!'s operations, but it's too early to anoint her the next Mark Hurd. He arrived at the slumbering giant of Hewlett-Packard (NYSE:HPQ) a few years ago, when the company was unaware of its margin-widening potential. Yahoo! is in a similar position today.

For now, Bartz is bringing in her own people and resorting to sharp layoffs to help improve the company's finances. That sounds great on paper, but where are the downsized folks heading off to? Rivals and upstarts will be the biggest beneficiaries of Yahoo!'s departing executives and engineers.

All HP had to do was catch up with a mortal Dell Computer (NASDAQ:DELL). Bartz is facing invaders from all sides -- search heavies and traffic-sucking Web 2.0 darlings -- and the enemy troops are reinforcing.

No one said a turnaround would be easy.

Yahoo!'s snooze bar tapping:

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Longtime Fool contributor Rick Munarriz wonders whether it's time for Yahoo! to shed the exclamation point. He owns no shares in any of the stocks in this story and 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.