NEW YORK (TheStreet) -- After Yahoo (YHOO) disclosed last night that the IRS determined not to grant a requested ruling with respect to whether the company's proposed spinoff of its stake in Alibaba (BABA) was taxable, several Wall Street analysts lowered their price targets on Yahoo shares, but also contended that the stock is already pricing in the uncertainty involved in the planned transaction.
ANALYST REACTION: Cantor Fitzgerald analyst Youssef Squali noted that the IRS pointed out that it wasn't ruling adversely on the request, but he views the setback as a "black eye" for the Yahoo team that has been working on the transaction. The analyst, who now puts a "50/50" probability on whether the tax treatment of the spinoff will be favorable, cut his price target on Yahoo shares to $45 from $56, but maintains a Buy rating on the stock, citing the value of its underlying assets. JPMorgan analyst Doug Anmuth cut his price target for Yahoo shares to $44 from $51 after the IRS notice on the private letter ruling, as he believes the lack of a ruling creates increased risk around the potential tax-free transaction, but also pointed out that such an event is still possible. He continues to view Yahoo as attractively valued and keeps an Overweight rating on the name. Piper Jaffray analyst Gene Munster said the after-hours selloff in shares of Yahoo to below $30 more than prices in the tax impact from the Alibaba spinoff. The risk/reward on shares is now positive given the "slight potential" for still achieving a positive tax resolution as well as a core valuation multiple below peers, said Munster, who cut his price target for Yahoo shares to $32 from $54 but keeps an Overweight rating on the name. Sterne Agee CRT analyst Robert Coolbrith, meanwhile, called the IRS's failure to rule "highly politicized" and said he was encouraged by the fact that Yahoo did not receive a negative ruling. The analyst, who continues to think Yahoo can safely proceed with the planned spinoff without a private letter ruling, kept his Buy rating and $52 price target on the stock.
SLOWER GMV GROWTH: On a separate note, Alibaba IR Director Jane Penner, while presenting yesterday at the Citi technology conference, said that the e-commerce giant's September quarter Gross Merchandise Volume, or GMV, will likely come in a "mid-single-digit percentage" lower than management's prior expectations. Squali said in his note regarding Yahoo that he believes the fact that China macro issues are having a negative effect on consumer spending adds more uncertainty around Alibaba's valuation and creates more urgency for Yahoo to complete its spinoff transaction.
PRICE ACTION: Yahoo shares, which closed down 2.15% at $30.90 yesterday, are sliding another 1.5% to $30.44 in pre-market trading. Alibaba, which fell 4.66% to $60.93 yesterday, was up about 1.8% to $62 per share in pre-market trading.