Yahoo! Inc. (NASDAQ:YHOO) shares soared more than 4% on Monday after after Alibaba announced over the weekend that it will hold its highly-anticipated IPO in the U.S. rather than in Hong Kong. The Marissa Mayer-led company owns a 24% stake in Alibaba. Yahoo shares jumped another 0.56% today to hit $39.33 as of 1 pm EDT. Investors will apparently stick around with the Sunnyvale-based company as long as the Alibaba IPO carrot is dangling before them. As soon as it goes public, Marissa Mayer will face pressure to deliver growth on Yahoo’s core businesses.
Yahoo’s core business is still declining
Yahoo! Inc. (NASDAQ:YHOO) shares have almost doubled since Mayer joined the company as its CEO in 2012. But much of the growth has been due to its 24% stake in the Chinese e-commerce giant, which is estimated to be worth anywhere between $150-$180 billion. Trip Chowdhry of Global Equities Research says that not much has improved at Yahoo’s core businesses. Mayer acquired Tumblr for $1.1 billion last year, but the company isn’t yet generating money off that investment.
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Yahoo! Inc. (NASDAQ:YHOO)’s online advertising business has been declining for years, and its revenues slumped 6% to $4.7 billion in 2013. Meanwhile, Alibaba’s revenues are estimated to have jumped 55% in 2013 to $7.6 billion. According to Bernstein Research, about 60% of Yahoo’s $40 billion market value is due to Alibaba. Based on Yahoo’s agreements with Alibaba founder Jack Ma, the Sunnyvale-based company will have to sell at least 40% of its stake in the Chinese company at the time of its IPO.
What will Yahoo do with all that cash?
The sale of a good chunk of its Alibaba stake is expected to yield at least $15 billion for Yahoo! Inc. (NASDAQ:YHOO). But the U.S. technology company is only likely to collect about $7 billion after taxes. The big question is how Marissa Mayer will spend this hefty sum. She may either increase the stock buyback, issue a one-time dividend or spend the cash on acquisitions. BGC Financial analyst Colin Gillis says acquisitions and stock buybacks are most likely moves.
Wall Street is optimistic about the Alibaba IPO. Based on how the stock is finally priced, the Chinese company may raise up to $18.5 billion in the offering. That would be higher than $16 billion that Facebook Inc (NASDAQ:FB) raised in its 2012 debut. According to Dealogic, Visa Inc (NYSE:V)’s $19.6 billion IPO in 2008 will likely still remain the biggest U.S. stock debut.