Algokid
Short

YAHOO & ALIBABA

NASDAQ:YHOO   YAHOO INC
406 5 3
BACKGROUND

In 2005 , Yahoo             Invested in Alibaba. Both companies entered in a TIPLA ( Tech. & Intel             . Property Licence Agreement), In which Alibaba would pay a percentage of its Total revenue, 2 % per year. For 2012 and 2013 , Yahoo             received $95 million and $93 million . However in 2012, the TIPLA was amended, and Alibaba paid a lump sum of $548 million to Yahoo             . When Alibaba goes public in a few weeks, these royalty fees will stop and , Yahoo             will have to sell 9 % of its stake in Alibaba (will receive about $8 Billion after tax).

ALL THAT CASH

- What will C.E.O. Marissa Mayer do with all that money ? well based on her track record , seems like more acquisition will be made.

"........When we look at the investments we need to make in the business, you’ll see the same type of mix we’ve been making to date. Some strategic acquisitions, some tuck-in acquisitions, and we really need to see what opportunities arise in terms of the ways we could deploy the cash at that time........” is that the right strategy ???

- Yahoo             made a dozen acquisitions last year , including (over)paying $1.1 billion for blogger platform Tumblr.
- Tumblr is actually LOSING money .

WHAT INVESTORS WOULD LIKE TO SEE:

- Share Buyback : This usually increase the value of the shares ( in Theory)
- One Time dividend payment to shareholders
- Assurance : No more acquisitions of companies that generate no revenue.

TECHNICALS

- YHOO             is currently at its long term support ( green line) , but also trading in a descending channel. Will be interesting to see how the stocks trades after the Alibaba IPO             .

CONCLUSION

Yahoo             has struggled to increase revenue over the past few years and it's ads business is trailing behind its competitors ( FB             , GOOG             , TWTR             ).

"....... The fact that mobile, social and video are still immaterial to Yahoo’s revenue paints a very sharp picture of how much catch-up work Yahoo             still has to do....", Mark Mahaney, RBC CM             .

Investors that bought Yahoo             shares specifically to have some exposure to Alibaba, will simply sell their stocks and buy Alibaba. When Alibaba goes public, shareholders will expect better results from Mrs. Mayer and her executives.

Cheers

Algo





www.passivestor.com

Related Ideas

timwest PRO
2 years ago
Excellent work.
Reply
Algokid PRO timwest
2 years ago
Thanks Tim, really appreciate it :)
Reply
420JayHova
2 years ago
Do you expect a short term pop in yhoo with alibaba's ipo? Seems all but guaranteed, which is why i'm scratching my head as to why the recent sell-off?
Reply
Algokid PRO 420JayHova
2 years ago
The recent sell off is probably attributed to the fact that investors who were in Yahoo, just for the exposure on Alibaba, are now getting out to YHOO and waiting to go in Alibaba. Also , perhaps they are waiting to see if Mrs. Mayer and her executive can really turn Yahoo around with the $ 8 billion they will receive. If they can stop declining revenues , like they did in Q1 2014 ( wouldn't be possible without the revenue from Alibaba), then the stock may have continue to go up. But based on activities of the last two years , such as acquiring TUMBLR , or giving a $58 MILLION golden parachute to ousted COO , for 15 months of work, I'm not too confident that Mrs .Mayer can accomplish the job.
+1 Reply
Did you also chart BABA?
Reply
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