Yahoo has been steadily moving toward the spinoff of its Alibaba stake, but there remains quite a bit of uncertainty about the plan. One of the biggest questions Wall Street probably has right now is whether the spinoff can be conducted in a tax-efficient manner, and it looks like investors think it’s unlikely.

Yahoo Price Target Trimmed For Alibaba, SpinCo

Alibaba cut triggers Yahoo cut

UBS analyst Eric Sheridan and his team trimmed their price target for Yahoo from $57 to $51 per share after cutting their target for Alibaba from $112 to $101 per share. They’re using a sum-of-the-parts analysis to assign their price target for Yahoo.

For the spinoff of the Alibaba and Yahoo Japan stakes, they slightly increased the net asset value discount from 15% to 20%. They gave three reasons for their increase of that discount. First, they note that Yahoo’s current share price suggests that investors see it as being very unlikely that Yahoo will receive a favorable private letter ruling from the IRS for that spinoff.  As a result, the UBS team is now assigning a 25% discount to both stakes at their current prices, assuming that the spinoff is fully taxed.

Second, they considered the discount that spinoff might get if it ends up being done “based on advisor comfort letters.” And third, they considered whether Yahoo might have to change course and consider going a different route.

Are Yahoo’s turnaround initiatives working?

The UBS team said they still see signs that Yahoo’s turnaround scheme is working as shifts toward mobile, video, native and social advertising appear to be working. However, they also point out that this progress is coming at the expense of operating margins, which continue to contract as a result of the company’s continued investments, mergers and acquisitions, and mix of revenue.

Recently Yahoo announced plans to acquire Polyvore, continuing the string of acquisitions it has been on since CEO Marissa Mayer took the helm. As of this writing, shares of Yahoo were trading at $36.03 per share just minutes after the markets opened.