) shares tumbled 6.6% to settle at $34.07 after the Chinese
e-Commerce giant, Alibaba, filed for an initial public offering
(IPO) with the U.S. Securities and Exchange Commission.
Founded in 1999, Alibaba is primarily owned by Yahoo! Inc.,
Japan's Softbank Corp. as well as other founders and senior
managers. Reportedly, Alibaba is expected to raise $15 to $20
billion from the IPO. However, the exact amount remains unclear.
) IPOs that raised $1.9 billion in 2004 and $2.09 billion in 2013,
respectively, Alibaba is expected to be the next major Internet
stock in the U.S. market, close to
), which raised about $16 billion in 2012.
Reportedly, Alibaba's IPO filing showed that Yahoo holds a 22.6%
stake in Alibaba as against earlier expectations of 24%. The
unexpected details revealed in the Alibaba IPO filing became a
reason of concern for many Yahoo shareholders as can be seen from
yesterday's steep price fall. Investors now expect Yahoo!'s Alibaba
stake to be worth less than anticipated, creating a panic in the
However, Alibaba is the most valuable asset Yahoo owns, and
shareholders will continue to benefit from Alibaba's growth, as
Yahoo is required to sell only 40% of its current holdings in
Alibaba, while retaining the rest.
Alibaba's impending IPO will likely have a major impact on
Yahoo. The IPO deal will generate enough cash for CEO Marissa Mayer
to reinvest in any new initiatives to get the core business into
decent shape. Mayer could bring a new product focus to the company
and spend some of the proceeds on acquisitions. She could also
return some cash to investors, either as dividends or share
We believe that prudent usage of the cash received could revive
core revenue growth and narrow the ever-widening gap between Yahoo
and its main competitors, Facebook and Google.
Since 2006, Yahoo had been striving to improve its financials
and build shareholders' confidence. However, since Mayer took over
Yahoo's reins, there has been a tremendous drive to optimize Yahoo
products for mobile devices, as well as intense focus on building
more engaging content. The efforts have not had a material impact
on Yahoo's results yet, with shares mostly responding to the
strength in Alibaba and the stake in Yahoo Japan.
Post the IPO euphoria, shareholders and investors will be
focused on the core business. Therefore, Mayer now needs to prove
that the company's turnaround is for real.
Yahoo shares carry a Zacks Rank #3 (Hold). Another stock that
has been performing well and is worth considering include
), carrying a Zacks Rank #1 (Strong Buy).
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