Two strategic investments and the accelerated release of the company’s new advertising system, Project Panama, provided a backdrop to Yahoo CEO Terry Semel’s assertion that a 37 percent drop in earnings is unacceptable to the company.

Profits dropped in Yahoo’s third quarter, largely due to a change in accounting that takes stock-based employee compensation into account. Analysts surveyed by Thomson Financial had considered that as well, which meant Yahoo met expectations for the period.

That’s not good enough, though. Yahoo has become one of the most visited presences on the Internet. Those visits have not translated into the kind of roaring profitability investors have seen with Google, and plenty of grumbling among them has taken place.

Yahoo has yet to recover from the drop in share price that took place when the company announced its third quarter would be on the low end of expectations. Chief Financial Officer Susan Decker told participants in the conference call that Yahoo lowered its fourth quarter forecast due to increased competition for advertisers.

“I am not satisfied with our current financial performance,” Semel, 63, said on the call. “We intend to improve it.”

The call followed a busy day for Yahoo, where they purchased one advertising company, took a minority stake in a second, and launched Project Panama ahead of an expected 2007 release. All of that looks like The Fear has come to Yahoo.

It isn’t just Google beating on Yahoo in the advertising market. Advertisers have found more fertile ground for their marketing, particularly to the youthful demographic virtually all businesses covet. The opportunities to get in front of them at places like YouTube or MySpace has been too tempting to resist.

One of Yahoo’s deals yesterday, the 20 percent stake in Right Media, complements what Yahoo has accomplished to date with rich media advertising. The need to do better there has become more urgent, with Google’s acquisition of YouTube’s audience giving it a virtual testing ground for advertisers begging for video placement.

But it is Panama that will either be the product that makes Yahoo into a solid competitor again, or a milestone Yahoo reached too late to keep from falling behind Google in the paid search marketplace. Semel and company have a lot of work yet to do.

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David Utter is a staff writer for Murdok covering technology and business.