SAN FRANCISCO -- Yahoo's stock fell Monday as investors grappled with uncertainty about the Internet company's future after last week's record-setting Wall Street debut by the Chinese e-commerce giant Alibaba.
Silicon Valley-based Yahoo reaped more than $9 billion from selling some of its shares in Alibaba's initial public offering, and the company has promised to return at least half of the after-tax proceeds to shareholders -- likely through stock buybacks. While Chief Executive Officer Marissa Mayer has not said what she'll do with the rest of the proceeds, analysts believe she could use the remaining $3 billion or so for acquisitions to help Yahoo revive its struggling advertising business and expand its online video programming.
But at least some investors are fleeing Yahoo now that they're able to buy Alibaba shares directly, said Brian Wieser, an Internet stocks analyst at Pivotal Research. Before Alibaba's IPO, Yahoo -- because of its large stake in the Chinese company -- was one of the few ways U.S. investors could tap into the growth of e-commerce in the world's most populous country.
Yahoo's stock has risen more than 30 percent over the past year, largely on the strength of investor excitement about Alibaba's booming business. Yahoo shares fell $2.28, or 5.6 percent, to close Monday at $38.65.
Many investors lack optimism about Mayer's chances of regaining some of the advertising business that Yahoo lost in recent years to newer rivals such as Google and Facebook.
"My expectations for Yahoo's core business are pretty muted," Wieser said. "There should be pretty tepid growth, if any, in the near term."
That didn't stop Wieser and a handful of other analysts from raising their price targets for Yahoo's stock. Yahoo, which acquired its stake in Alibaba in 2005, still holds more than 380 million shares in Alibaba, worth more than $34 billion at Monday's trading price.
The remaining stake in Alibaba raises the possibility of a big, future payday for Yahoo investors if the company sells more of its shares.
Those Alibaba shares also represent the bulk of Yahoo's stock market value of $38.5 billion, suggesting that investors are putting little value in the company's core business. Since she was hired from Google two years ago, Mayer has overhauled Yahoo's online services and hired some big names such as former CBS newscaster Katie Couric to anchor Yahoo's online news operation. Mayer has also begun to modernize Yahoo's online advertising programs. But sales have remained flat in recent quarters while other major online companies have seen significant advertising growth.
Mayer could use some of the new Alibaba cash to continue a buying spree that has seen Yahoo acquire dozens of smaller companies since she became CEO, analysts said. While many of those deals were aimed at acquiring technology or talent to help improve Yahoo's online consumer offerings, Mayer has more recently turned her attention to the company's advertising platform and its video programming.
While there's always the possibility of a headline-grabbing deal, on the scale of Mayer's move to buy the social blogging service Tumblr for $1 billion last year, analyst Martin Pyykkonen of Rosenblatt Securities said in a recent report that it's more likely she will focus on smaller deals to improve Yahoo's advertising technology. One area of focus might be to enhance the company's automated selling tools, which critics say are not as powerful or effective as Google's or Facebook's.
Business on 09/23/2014