) climbed nearly 3%, touching a high of $35.26, before closing a
notch lower at $35.13, following an upgrade from neutral to
overweight by the investment and asset management firm Piper
Jaffray. In addition, Piper Jaffray analyst Gene Munster increased
the price target on the stock to $43.00 (from $37.00).
The analyst believes that Yahoo!'s equity stake in Chinese
e-commerce giant, Alibaba Group Holding is underestimated at the
current price. He opines that as the time for Alibaba's initial
public offering ("IPO") comes closer, it will send Yahoo!'s shares
20% percent higher than the current levels.
Gene Munster compared Alibaba to other e-commerce companies such as
), and China-based Internet businesses such as
) and estimated that Alibaba is worth $221 billion including cash.
He is optimistic that as the IPO date nears, the valuation of
Alibaba will be higher, which in turn will be reflected in Yahoo!
In May, the Chinese e-commerce giant filed for an IPO with the U.S.
Securities and Exchange Commission, which is expected to be the
next major Internet IPO in the U.S. market, close to
). Alibaba's IPO filing showed that Yahoo holds a 22.6% stake in
Alibaba and that it is expected to offload 40% of its holdings in
the upcoming IPO.
Therefore, 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. Post the IPO euphoria, shareholders and
investors will be focused on the core business.
Mayer could bring a new product focus to the company and spend some
of the proceeds on acquisitions. She can also return some cash to
investors, either as dividends or share repurchases.
There surely has been a connection between Yahoo share prices and
the Alibaba IPO since rumors started in 2013. We need to wait and
see whether there are further price fluctuations till Alibaba
shares go public.
Yahoo! shares currently hold a Zacks Rank #4 (Sell).
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