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RBC says datapoints from industry contacts suggest that Yahoo's (NASDAQ:YHOO) Project Panama algorithm change on February 5th progressed fairly smoothly.

Datapoints aggregated from numerous sources suggest that the algorithm change was smooth and that there were no major technical glitches or setbacks in the initial two weeks. Firm view this as a major positive.

After some initial volatility in highly-trafficked keywords, Panama started to learn and re-rank advertisers based on brand relevancy and better ad creatives, showing that the system is working.

In the aggregate, firm believes advertiser spend should increase modestly from pre-to-post Panama levels. Ad spend increases for advertisers with high ROI-focus is more pronounced, as daily limits and budgets are flexible. Spend increases at brand-oriented advertisers may lag by about one quarter, as these marketers typical have to go through longer approval processes for additional budget. Firm reminds investors that it is still early, that some advertisers have temporarily increased max-bids to influence CTRs, and that budget adjustments happen slowly for many advertisers.

It is too early to definitively say, but firm has heard anecdotally of some advertisers with limited budget flexibility (brand-oriented) shifting some dollars from Google (NASDAQ:GOOG) and MSN (NASDAQ:MSFT).

Firm has raised their estimates to reflect positive y/y monetization impact in 1H07. Firm's FY07 revenue, EBITDA and EPS estimates are now $5.3b, $2.1mm, and $0.71 vs. prior $5.24b, $2.08mm, and $0.70.

Notablecalls: Project Panama continues to be the most important theme for Yahoo. Expect the share price to advance further as the word on positive launch continues to spread.

Source: RBC: Yahoo's Panama Launch Going Smoothly