Yahoo! Inc. (NASDAQ:YHOO)’s future looks better and better, according to analysts at UBS. They have adjusted their valuation of the company because of better trends in the data and also the approaching initial public offering of Alibaba, in which Yahoo has a significant stake.

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Yahoo to benefit from Alibaba IPO

Analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo have a two-part transaction analysis for Yahoo! Inc. (NASDAQ:YHOO)’s Alibaba holdings. They are maintaining their $100 billion estimated valuation at Alibaba’s IPO, although they have increased their valuation for the stake after the IPO. They now value Yahoo’s Alibaba’s holdings after the IPO at $160 billion. They had been valuing the holdings at $120 billion post-IPO.

The analysts also adjusted their assumed tax rate because they see it more likely for the outcome to be tax efficient.

Yahoo sees traction in new ad products

Aside from the news about Alibaba, Yahoo! Inc. (NASDAQ:YHOO) itself has also been gaining ground, according to the UBS analysts. They ran some advertising checks and said Yahoo’s Stream Ads appear to be gaining traction because they are compatible across platforms and carry higher click-through rates. They believe Stream Ads could become even more prevalent if the company’s recent high-profile media hires, including Katie Couric, are able to deliver content which drives engagement across all of Yahoo’s properties.

The analysts said these ad units could increase the search giant’s share of brand advertising dollars while also offsetting pricing declines through higher cost per impression. They also noted the “early stages” of a ramp-up in monetization for Tumblr. Specifically, they noticed native ads in the forms of Sponsored Web Posts and Sponsored Trending Blogs. The analysts said Tumblr “provides a call option to Yahoo shareholders if its monetization efforts achieve scale.” As a result, they see potential upside to their 2014 revenue forecasts.

Data shows promising traffic trends on Yahoo

The UBS team also said traffic trends look robust after Yahoo! Inc. (NASDAQ:YHOO) redesigned a number of its products. comScore released new desktop traffic information this week and found that Yahoo was again the top U.S. web property according to monthly unique users. This is the fifth consecutive month Yahoo has accomplished this.

They believe Yahoo’s product enhancements have been the main driver of this positive result and believe that traffic trends will continue to be driven even more by the search giant’s content investments, including live events and video programming, as well as “mobile daily habit products.”

Yahoo still Buy-rated

The analysts have maintained their Buy rating on Yahoo! Inc. (NASDAQ:YHOO), but they have raised their price target from $37 to $46 per share. Shares of Yahoo rose more than 1% in afternoon trading.