Yahoo’s $4 Billion Change in Stance, What to Expect...
Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yahoo! (NASDAQ: YHOO) began as a student hobby and evolved into a global brand that has changed the way people communicate with each other, find and access information and purchase things. The then small company is now a web giant.
Its’ been six years since Yahoo! paid over $1 billion for its 40% stake in Alibaba Group Holding Ltd. to become the single largest investor in the company. Now, the struggling US internet giant is selling up to half of its stake (20%) in the Chinese e-commerce company for $7.1 billion. The consideration would fetch Yahoo $6.3 billion in cash and Alibaba’s preference shares worth $800 million. Out of the remaining 20%, Yahoo plans to sell an additional 10% when Alibaba files for an Initial Public Offering, which should be in the next few years and sell the reminder stake at a later date. This deal would have netted Yahoo! around $4 billion after taxes and the company had drawn out plans to increase its buyback by $5 billion.
But Yahoo shifted its stance on Thursday when it said it could reconsider returning to the shareholders all of the after tax proceeds of the initial share repurchase by Alibaba Group. This comes as a signal that the company’s new Chief Executive Ms. Marissa Mayer, may use this cash for other purposes. The aftermath of this announcement was seen on the company’s stock price which recorded its single biggest day fall of 5.37%. This speaks volumes about the sentiments of shareholders of the company. It shows that they had held onto the stock primarily for the return of the money from the Asian asset sale and do not attribute much value to the company's core business. The majority of Yahoo!’s market valuation is tied to its stakes in the different Asian Web companies like Alibaba and Yahoo Japan. Yahoo!’s core business which mainly includes selling online advertisements which generate around $5 billion annually has known to have very little value in the eyes of the investors. Yahoo!, once the top internet search engine, has been lagging search leader Google and also the recently hyped Facebook in the battle for advertisements.
Google (NASDAQ: GOOG) has its hands on the entire facet of the internet. From Gmail to YouTube and then Google Plus, the company is trying to imbed everything within it and give users an overall experience under the Google banner. Google reported its earnings earlier this June. With earnings right on track with what the analysts' were expecting, the company assured its investors about the company's money making prowess. Google is getting better and better by showing online ads to the right people at the right time.
Facebook (NASDAQ: FB) which has a user base of over 900 million also has great potential in the time to come. The only thing the company is missing presently is a solid business model that justifies its lofty valuation. Currently Facebook requires its management to make strategies which will help the company unlock its economic power and become a true high growth powerhouse.
The only way for Yahoo to justify such a change in stance is by revitalizing its core business which may include expansions and material acquisitions which delivers long term generation of wealth for the shareholders. Ms. Mayer is set to do some bulk hiring and bring in some fresh new talent in the company to implement any new strategies that she may be drafting. Yahoo! has a very dismal record when it comes to acquisitions, but analysts believe that Ms. Mayer is up for some serious buying for the Company which includes buying advertisement technology companies, companies dealing with consumer products and some quality companies involved in making applications considering Yahoo! has always been weak in this segment.
Provided there is scope for growth, it is always good to put money to use rather than giving it back to the shareholders. We really hope Ms. Mayer puts her experience to use and does a turnaround for the struggling company. Shareholders want to see the company drive in more revenue from its core businesses rather than cashing out their stakes in various companies. With billions burning a hole in her pocket, let us see what Ms. Marissa Mayer buys for the company!
yashup has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend Facebook, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.