Yahoo! (YHOO) Stock Gains After Alibaba's Positive Quarter

NEW YORK (TheStreet) -- Shares of Yahoo! (YHOO) were gaining 6.6% to $44.40 Thursday following Alibaba's (BABA) positive fiscal fourth quarter results.

Alibaba reported earnings of 48 cents a share for the fiscal fourth quarter, beating analysts' estimates of 42 cents a share for the quarter. The Chinese e-commerce company said revenue grew 44.8% year over year to $2.81 billion for the quarter, above analysts' estimates of $4.78 billion.

Alibaba also announced that current COO Daniel Zhang will take over as the company's CEO on May 10.

Yahoo! owns 15.4% of Alibaba's outstanding shares, according to the company's latest regulatory filing. The U.S. company announced in January that it plans to spin off its stake in Alibaba, though the spin off is not expected to close until the fourth quarter of 2015.

TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate YAHOO INC (YHOO) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • YHOO's revenue growth has slightly outpaced the industry average of 5.8%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • YHOO's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.44, which clearly demonstrates the ability to cover short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, YAHOO INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • You can view the full analysis from the report here: YHOO Ratings Report
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