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Yahoo! Boosted by Alibaba IPO Prospects

Stocks in this article: YHOO

NEW YORK ( TheStreet) -- The recent run-up in Yahoo!'s (YHOO) shares can be largely attributed to the pending Alibaba initial public offering, as the Chinese e-commerce giant gets set to list its shares. It won't be doing that in Hong Kong, however.

Reuters reported that the Hong Kong Stock Exchange is out of the running, citing comments from CEO Jonathan Lu in an interview. "The Hong Kong authorities need time to study this corporate governance structure (for knowledge-based companies)," Lu said during the interview.

While Lu has not committed to any other exchange, including the New York Stock Exchange, it's now an almost certainty that Alibaba, of which Yahoo! owns 24% of, will list in the U.S. It's unclear whether Alibaba will list on the NYSE or the Nasdaq, but it's a good bet the company will list here, which has helped investor enthusiasm for the upcoming offering.

Alibaba could not be immediately reached for comment for this story when asked about the decision process that led to ruling out Hong Kong.

Over the past six months, Yahoo! has seen its share price go from around $25 to $33 as of Wednesday's close, good for a gain of 32%, vastly outpacing the broader indices. Much of that is due to the optimism surrounding Alibaba, which could be worth anywhere between $70 billion and $120 billion at the time of offering. Listing in the U.S. will likely help its market cap, as investors will be able to place more confidence that its accounting standards will hold up to the rigors of Sarbanes Oxley.

YHOO Chart YHOO data by YCharts

According to Yahoo!'s recent earnings report, Alibaba has performed exceptionally well. The Chinese-based Alibaba provided Yahoo! with net income of $669 million in the quarter, up 203% year-over-year, as revenue rose 71% during the same timeframe. That strong performance helped Yahoo! shares rise 8% on July 17, the day following Yahoo!'s earnings, to a five-year high.

In September 2012, Yahoo! sold about half of its original 40% stake in Alibaba. The sale netted $7.6 billion before taxes; $3 billion from that sale, or 85% of its net cash proceeds, was returned to shareholders in a stock buyback. As part of that deal, Yahoo! agreed to sell half of its remaining 24% stake in the event of an Alibaba IPO.

Yahoo! acquired the stake in 2005 for $1 billion in a deal spearheaded by Jerry Yang, Yahoo!'s co-founder.

Shares of Yahoo! were higher in early Thursday trading, gaining 2% to $33.68.

-- Written by Chris Ciaccia in New York

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