NEW YORK (TheStreet) -- Chinese Internet giant Alibaba's net income more than doubled last quarter, fueling a bottom line beat for Yahoo! (YHOO). And the results, announced by Yahoo! yesterday evening, is increasing fervor on StockTwits.com for Alibaba's eventual listing on U.S. markets.
Yahoo!'s earnings in equity interests, which are fueled by the Internet media company's 24% stake in Alibaba, increased 39% from the prior year to $301.4 million. Meanwhile, Yahoo!'s operating income, excluding some items, fell 33% to $149 million as it invests in new businesses.
Alibaba's net income increased 110% to $1.36 billion in the fourth quarter of 2013. Revenues grew 66% to $3.1 billion. (There's a one-quarter lag between when Yahoo! reports its data and Alibaba's financial figures). Yahoo!'s stock increased nearly 8% in premarket trading.
Yahoo! is struggling to become more than a shell for Alibaba's soon-to-be traded stock. Alibaba is in a quiet period and is expected to list this year with a valuation of more than $150 billion. Yahoo! is investing in creating online Web portals for popular content, similar to its leading finance site, but for food, news, sports, gaming and tech.
$YHOO so when alibaba ipo is a bust this is back to 14 right?-- Terry Spookeson (@spookytrades) Apr. 16 at 07:09 AM
The jury is still out on the success of Yahoo!'s new strategy. It reported first quarter earnings per share of 38 cents on $1.09 billion in sales, after taking out the amount the company pays to sites that host its advertisements, a.k.a "traffic acquisition costs," or TAC. EPS beat Wall Street consensus estimates by a penny. Sales came in $10 million higher than consensus expectations, according to the Analyst Ratings Network.
Revenues, ex-TAC, increased 1% from the same period a year ago. That's a move in the right direction, but it is still anemic growth. Yahoo! CEO Marissa Mayer also highlighted that display revenue grew in the first quarter, evidence that some of the turnaround efforts may be working. The number of ads sold increased 7% from the first quarter of 2013.
Mayer said Yahoo! would use the proceeds from sales of Alibaba stock to buy a mix of large, strategic acquisitions and some tuck-in acquisitions. "We really need to see what opportunities arise in terms of the ways we can deploy cash at that time and we'll do it in conjunction with our board," she said.
The results sparked analyst upgrades. Wells Fargo analysts upgraded the stock from market perform to outperform with a $40 price target. Consensus pegs the stock at $37.04, according to the Analyst Ratings Network. Piper Jaffray analyst Gene Munster raised his price target $1 to $37 this morning. RBC Capital's Mark Mahaney reiterated his buy rating on Yahoo!
But many of the raised targets cited Alibaba's profit growth as a key reason.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.