Alibaba powers upgrades at Yahoo

Chinese e-commerce giant overshadows quarterly results of Yahoo

PUBLISHED : Thursday, 18 July, 2013, 12:12pm
UPDATED : Thursday, 18 July, 2013, 12:12pm

Yahoo shares surged 8 per cent to a new five-year high on Wednesday, as investors ignored the Web portal’s struggling business and cheered the strong performance of its investment in Alibaba Group.

The Chinese e-commerce giant, in which Yahoo owns a 24 per cent stake, nearly tripled its net income in the first three months of the year and increased its revenue by 71 per cent.

Yahoo did not provide any details about what was responsible for the strong performance of the privately-held Alibaba Group, which is widely expected to have a public offering later this year or next year.

Yahoo’s earnings report includes Alibaba’s financial results from the previous quarter. Alibaba’s first quarter results stood in sharp contrast to Yahoo’s own performance during the second quarter, with the Web portal reporting stagnant revenue and a sharp decline in prices for its display ads.

Wall Street’s focus on Alibaba rather than on Yahoo was reflected in the slew of analyst notes published following Yahoo’s earnings, including Stifel Nicolaus’ Jordan Rohan whose note to investors was titled: “Alibaba triples profit; Yahoo reported too.”

“We continue to think that the defining factor for Yahoo stock is the value of Alibaba,” Bernstein Research analyst Carlos Kirjner said in a note.

Shares of Yahoo were trading at US$29.05 at midday on Wednesday.

Yahoo’s stock has surged more than 85 per cent since Chief Executive Marissa Mayer took the reins one year ago. Much of the gains have been due to aggressive stock buybacks funded by Yahoo’s earlier sale of a portion of its Alibaba stake, as well as anticipation of an Alibaba initial public offering.

At least four brokerages raised their valuation on Alibaba to as much as US$120 billion, higher than the US$100 billion valuation put on Facebook Inc before its IPO. Yahoo has a market capitalisation of about US$29 billion.

Evercore, which raised its valuation on Alibaba to US$120 billion from US$90 billion, said nearly half of Yahoo’s valuation is due to its stake in the Chinese company and only a quarter can be attributed to its core business.

Yahoo acquired a 40 per cent stake in Alibaba in 2005 for US$1 billion, in a deal arranged by Yahoo co-founder Jerry Yang, which has proved to be one of the company’s shrewdest investments.

Yahoo’s second-quarter results underscored the challenges CEO Mayer faces as she tries to revive the company’s core business, which has suffered from competition from Google Inc , Facebook and other online services.

Yahoo trimmed its full-year revenue forecast to US$4.45-US$4.55 billion from US$4.5-US$4.6 billion. Revenue fell slightly in the second quarter to US$1.07 billion.

“For most, the Yahoo story will not change given strength in Asian assets,” said JPMorgan analyst Doug Anmuth, “but core Yahoo challenges serve as a reminder that turning Yahoo into even a modest growth business will likely take some time.”