For the past couple of years, Yahoo’s value hasn’t really been about Yahoo—it’s been about Alibaba.
Yahoo has had a significant interest in the Chinese e-commerce giant since 2005, when it purchased a 40 percent stake for $1 billion. Over the next several years, the value of Yahoo’s stake grew alongside the value of Alibaba. At the same time, Yahoo’s revenue growth stagnated. Analysts began to speculate that, without its Alibaba and Yahoo Japan assets, Yahoo’s business was just about worthless.
When Alibaba finally went public in September, discussions were renewed about what Yahoo and chief executive Marissa Mayer would choose to do with the lucrative shares. On the day Alibaba debuted, Yahoo’s stake was valued around $38 billion. But no one was even sure if the holding was worth that much, because of the taxes Yahoo might have to pay. “If Yahoo gets hit with a tax rate of, say, 25 percent,” DealBook’s Peter Eavis wrote at the time, “it would net Yahoo $28 billion, not $38 billion.”
Which is why it’s a big deal that Yahoo has found a way to avoid paying taxes on its remaining Alibaba holdings. (Yahoo sold $10 billion in Alibaba shares in September as part of the IPO and was hit with about $3 billion in taxes on the transaction.) According to the plan announced Tuesday, Yahoo will move its 384 million shares of Alibaba, worth $40 billion, into a new company called SpinCo (apparently they weren’t going for subtlety with the name). That stock will then be distributed to Yahoo shareholders, making SpinCo a separate publicly traded company.
“Through share repurchases to date, we have returned approximately $9.7 billion of proceeds from Alibaba,” Mayer said in a release. “Post-spin, using the closing price for Alibaba as of January 26, we will have returned nearly $50 billion dollars of value to our shareholders. This level of capital return is historic, especially for a company of our size.”
Also on Tuesday, Yahoo reported fourth-quarter and full-year earnings for 2014. Mobile revenue rose 23 percent to $254 million from the same quarter in the previous year, and search revenue increased as well. Both of these things are good signs for Yahoo. Fixing mobile products has been a major goal of Mayer’s, and one she’s invested in heavily. In early December, research firm eMarketer projected that Yahoo would soon pass Twitter as the third-biggest player in the U.S. mobile ad market (Google and Facebook remain comfortably in the No. 1 and 2 seats). And in search, Yahoo recently displaced Google a bit, reaching a five-year deal to become the default search engine on Mozilla’s Firefox browser.
Of course, it’s much too soon to know whether the Alibaba spinoff and advances in mobile and elsewhere are enough to turn Yahoo’s struggling operations around. But at least for now, shareholders are happy. Yahoo’s stock is up more than 7 percent after hours. Following the beating Mayer took on her most recent earnings call, that’s probably a welcome relief.
