Updated from 8:15 a.m. to include additional comments on the stake sale in the fifth paragraph and updated Yahoo! market cap to reflect yesterday's selloff.
NEW YORK (TheStreet) -- After Alibaba's initial public offering, Yahoo! (YHOO - Get Report) and CEO Marissa Mayer may be looking to put some of that money to work, buying companies that will boost both revenue and engagement.
Yahoo!, which reports second-quarter results later this month, has more than 430 million mobile users, a statistic Mayer and CFO Ken Goldman have touted several times, as the company transitions to the mobile age. "I'm excited today to announce that Yahoo! has more than 430 million monthly mobile users, a 30% growth year-over-year," Mayer said on Yahoo!'s first-quarter earnings call. "Now more than half of Yahoo!'s total monthly audience joins us on a mobile device."
Mayer has said that Search, Communications, Digital Magazines and Video are the four key areas of interest for Yahoo!, as it seeks to reshape itself. In that note, Yahoo! has acquired dozens of smaller companies to help with that front, including names like Summly, Jybe, and the largest, Tumblr, which was purchased in May 2013 for $1.1 billion in cash and stock.
Yahoo! holds nearly 24% of Alibaba, which is expected to go public later this year, perhaps as soon as August. Analysts have speculated that the company could be worth anywhere between $150 billion and $200 billion once shares start trading, making Yahoo!'s stake worth between $36 billion and $48 billion, worth more than the company itself. Yahoo!'s current market cap is approximately $35 billion, which not only takes into account the Alibaba stake, but a 35% stake in Yahoo! Japan, as well as the core business.
Cantor Fitzgerald analyst Youssef Squali believes that of the 524 million Alibaba shares Yahoo! holds, 430.9 million are still held in Hong Kong, which could boost Yahoo! share prices. "Assuming no capital gains tax on Hong Kong-held shares (pre-US repatriation tax,) we estimate there could be $10-15/share of additional upside to our $42 DCF-derived PT," Squali wrote in a research note.
A Yahoo! spokesperson said the company does not comment on rumors or speculation.
Yahoo! is required to sell approximately 12% of its Alibaba holdings in the initial public offering, which would significantly boost its balance sheet. At the end of the first quarter, Yahoo! ended the quarter with $4.6 billion in cash, compared to $5 billion at the end of 2013, a drawdown of $400 million.
Much of the speculation about what Sunnyvale, Calif.-based Yahoo! will do with its new found cash has centered on the core business, search and advertising, which has declined in recent years, as companies like Facebook (FB - Get Report), Google (GOOG - Get Report) and others get advertising dollars.
On the earnings call, Mayer said core Yahoo! is accelerating, albeit very slowly. She noted that there will continue to be acquisitions, as Yahoo! looks to turn around the core business. There will be some "strategic acquisitions," and some tuck-in acquisitions, as Yahoo! has done in the past.
"It feels like most small and mid-cap Internet companies are possibilities," said one hedge fund analyst, who declined to be named. "Given the recent deal for Community, it seems she [Mayer] is desperate for content." The analyst owns Japanese-based Softbank -- which holds a stake in Yahoo! Japan, and not Yahoo! -- because "of the risk" of what Mayer might do once the company receives the cash infusion from the Alibaba stake sale.
A look on Mergerize, a social platform for making merger and acquisition predictions, shows Yahoo! is expected to be quite active acquiring companies in the next few years. Names like Pinterest, Yelp (YELP - Get Report), AOL (AOL), Quora, Foursquare, and several others are mentioned, as the Sunnyvale, Calif.-based Yahoo! seeks to boost its core business, which includes search and display advertising.
Here are three areas where Yahoo! CEO Marissa Mayer may look to acquire businesses to boost not only the company's engagements, but revenue as well.