There are relative victories and then there are absolute victories.

Yahoo!'s (Nasdaq: YHOO) latest quarter is certainly not an absolute victory. Revenue excluding traffic acquisition costs fell 5% to $1.072 billion, as flat display advertising revenue growth couldn't overcome the continuing slide in paid search since the company outsourced that business to Microsoft (Nasdaq: MSFT).

Back out an Alibaba-related gain this time around and a juicier realized gain after selling HotJobs to Monster Worldwide (NYSE: MWW) last year and adjusted earnings did climb 32% higher to $0.21 a share. However, operating profits still fell by 6%.

The news gets better on a relative basis, since Yahoo!'s performance was better than the $0.17 a share profit on $1.07 billion in revenue that analysts were targeting.

Yahoo!'s guidance for the seasonally potent current quarter -- projecting revenue of $1.125 billion to $1.235 billion after backing out traffic acquisition costs -- may be a marked sequential improvement, but Wall Street's estimates and last year's performance are above the midrange of that outlook.

Running in place wouldn't be such a bad thing if Google (Nasdaq: GOOG) wasn't such a sprinter. Revenue excluding traffic acquisition costs soared 37% at Big G during the same three months.

Where does Yahoo! go -- or more important, grow -- from here?

There have been unconfirmed reports that Microsoft, Alibaba, and even AOL (NYSE: AOL) have been kicking Yahoo!'s tires. Then again, who's to say that the dot-com giant can't be the tire kicker? Even after buying back gobs of its own stock, Yahoo! closed out the quarter with nearly $3 billion in cash.

What is clear is that the current plan isn't really working. The status quo of hoping that Bing can make it rain purple and the original thesis that outsourcing its search would allow Yahoo! to focus on growing its display ads aren't working.

Something's got to give at Yahoo!, and it may as well be the hunter before it settles for being the hunted.

If you want to follow the Yahoo! saga closely, add Yahoo! to My Watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.