This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Deal: For Yahoo!, Is Alibaba IPO a Blessing or Curse?

Stocks in this article: YHOO GOOG MSFT

NEW YORK ( The Deal) -- Yahoo!'s (YHOO) purchase of social media-cum-web browser developer Rockmelt on Aug. 2 marks the 21st acquisition since Marissa Mayer became CEO of the Internet company last year.

The parade of deals, which includes the high-profile $1.1 billion purchase of photo site Tumblr, is certainly impressive. Besides lending prestige to Yahoo because of the company's increasing association with hip startups, the dealmaking has lifted Mayer's stature with the likes of hedge fund Third Point CEO Daniel Loeb, who agitated for change at Yahoo two years ago and is now rattling Sony Corp.'s cage.

To be sure, Mayer's style has helped the Sunnyvale, Calif.-based Yahoo's image, but the warm glow enveloping the company's stock comes primarily from its 24% stake in Chinese e-commerce developer Alibaba Group, which is gearing up for an initial public offering. Yahoo's shares jumped 10% after its July earnings call, when the company provided more transparency into numbers from Alibaba and Yahoo! Japan.

"They are a proxy for investing in the Alibaba IPO, in some respects," SNL Financial analyst Seth Shafer said.

The Alibaba IPO will mean billions of dollars in cash for Yahoo. UBS analyst Eric Sheridan suggested in a July report that the Alibaba stake is worth about $20.4 billion before taxes.

But an Alibaba IPO will also raise substantial questions for Yahoo.

The first, and most obvious, decision is what to do with the money. Yahoo could well spend much of it on dividends or buybacks. The deeper question is how Yahoo can replace the growth that Alibaba provides, and whether Mayer will change the company's approach to M&A to boost the top line.

Yahoo has regained cachet with employees and investors during Mayer's tenure as CEO. Witness the 10,000 resumes per week Yahoo receives, as well as the stock's jump to nearly $30 from about $15.70 in the 12 months that she's been leading the company.

Mayer's acquisitions haven't produced growth yet, although that hasn't been the immediate goal. After all, most of them have been small. But what Mayer wants to do is build Yahoo's talent pool. The first woman engineer at Google (GOOG), Mayer has often been making "acqui-hires" that annexed talent rather than assets. With Rockmelt, for instance, Yahoo is shutting down the target's website.

1 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs