Tax Treatment of Alibaba Stake Sale Key for Yahoo, Analysts Say

NEW YORK (TheStreet) -- Ahead of the launch of trading in Alibaba  (BABA) shares later today, research firm Piper Jaffray believes that much of the easy gains in Yahoo's (YHOO) stock have already been realized. The focus will now be on how the shares of Alibaba that Yahoo does not sell today will be taxed, the firm stated.

WHAT'S NEW: The stock of Chinese e-commerce behemoth Alibaba, in which Yahoo holds a roughly 22% stake, was priced at $68 per share and are due to start trading later today on the New York Stock Exchange. The IPO priced slightly above the previously anticipated range of $60-$66, as reported on September 5.

ANALYST OPINION: The "easy money" from Yahoo's stock, which has risen 11% over the last month, "is off the table," Piper Jaffray analyst Gene Munster wrote in a note to investors today. Investors' focus will now be on the tax treatment of Yahoo's remaining shares in Alibaba that it does not sell soon after the onset of trading in the name, Munster believes. Yahoo will be able to avoid paying "essentially all tax" on this second tranche of about 400M shares, but the company may take several quarters in order to decide how to do so, the analyst believes. There is a 75% chance that the U.S. company will pay no tax on these shares, and a 25% chance that it will pay the full 38% tax rate, wrote Munster. He decided to value the second tranche of Yahoo's shares in Alibaba based on a 10% tax rate and a value of $81 per share. As a result, the analyst raised his price target on Yahoo to $48 from $44 and kept a Buy rating on the stock. Meanwhile, Cantor analyst Youssef Squali agreed that tax efficiency would be the key issue for Yahoo going forward. He raised his price target on the U.S. company to $43 from $39, but added that the stock could be worth $53-$58 if Yahoo is able to sell its second tranche of shares in Alibaba in a tax efficient manner. Squali kept a Buy rating on Yahoo.

PRICE ACTION: In early trading, Yahoo rose 1.6% to $42.75.

Reporting by Larry Ramer.

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