Yahoo! Inc. (YHOO) to Sell Few Alibaba Shares at IPO and return half of proceeds to Shareholders


Yahoo! Inc. (NASDAQ:YHOO) reported a dismal quarterly earnings for the Q2. Their revenue dropped by 4% in Q2 to $1.08 billion from the year-ago quarter. This is the lowest reported revenue growth since Marissa Mayer took over the company. With Alibaba set to go public next month, investors feel that this might pump some cash into Yahoo. Rob Sanderson, MKM Partners Senior Analyst and Colin Gillis, of BCG Financial, talked on CNBC regarding Yahoo! Inc. (NASDAQ:YHOO) quarterly earnings report and the impact of Alibaba IPO on the company.

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Sanderson said that many people are focusing on EBIDTA number which is better for Yahoo! Inc. (NASDAQ:YHOO) rather than EPS. He feels that there is a weak outlook on the profitability line for the company. He thinks that good news to investors might be the fact that they have decided to sell lesser Alibaba shares in IPO and retain larger number to sell at bigger price.

He said that even after IPO, Yahoo! Inc. (NASDAQ:YHOO) stock would be down due to lackluster performance of companies core business. Even if there is any turnaround, investors might have to be patient for a very long time.

“The good news for the company is they do have this very material event in front of us and even after the pricing of the deal, they are still going to retain about 75% of their stake, so they will still be driven by the public market valuation of Alibaba even after the IPO pricing,” Sanderson said.

Gillis thinks that this is very dismal Q2 earnings for Yahoo! Inc. (NASDAQ:YHOO) and the worst since Mayer had taken over. Yahoo CEO had acknowledged the fact that turnaround of the company might take longer time. He reported that Yahoo is going to sell lesser Alibaba shares at IPO and return half of the proceeds to shareholders.

Gillis said that he is neutral to negative on this decision. He raises a doubt on if we can expect Alibaba to be a success after IPO or not. He pointed out at Facebook Inc (NASDAQ:FB) IPO as an example, after which it took longer time for Facebook stock to get hold status again.

“With less proceeds and with committing half of those proceeds to shareholders they have less cash to try to turn the company around again. The majority of their assets are still going to be locked up in AB,” Gillis said.

He feels that Yahoo! Inc. (NASDAQ:YHOO) management is not trying to turn the core business around.


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