This Day On The Street
Continue to site
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

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

NEW YORK ( The Deal) -- Yahoo!'s (YHOO - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
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!
GOOG $524.05 0.00%
MSFT $41.62 0.00%
YHOO $44.45 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%


DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs