Although Yahoo CEO Marissa Mayer has previously carried out large-scale mergers and acquisitions, in terms of performance, financial reports, and market capitalization, these acquisitions have not yet played a role in reversing Yahoo's fortunes. Many analysts, when discussing Yahoo, invariably mention its equity investment in Alibaba in China. U.S. media recently analyzed that for Yahoo, the rather embarrassing fact is that the value of its stake in Alibaba at times reached as high as 90% of Yahoo's current market value. In other words, excluding Alibaba's equity, Yahoo's assets are not worth much.
According to Yahoo's latest earnings report, Yahoo is currently operating two independent businesses: one is a consumer-facing internet company still struggling to gain a share of online advertising; the other is being one of the major shareholders in Alibaba in China. Alibaba's profitability is more than twice that of Facebook.
Currently, it seems that Yahoo's second business is driving the first. Yahoo's market value stands at $34.1 billion, and it holds 24% of Alibaba's shares. Alibaba Group is preparing for an IPO, with its asset valuation ranging from $75 billion to $125 billion.
If calculated based on the lower end of the valuation, Yahoo's stake in Alibaba is worth $18 billion, approximately half of Yahoo's market value. If calculated based on the higher end of the valuation, Yahoo's Alibaba equity is worth $30 billion, meaning that Yahoo's own business and assets account for only $4 billion, or 12% of the company's market value.
Yahoo invested in Alibaba in 2005, paying $1 billion for a 40% stake in Alibaba at that time. Back then, Alibaba was eager to obtain capital and technology. However, today, their roles have reversed. Alibaba now hopes to get rid of Yahoo as a shareholder because Yahoo no longer holds any value for Alibaba. According to their arrangement, Yahoo needs to sell off a large portion of its shares when Alibaba goes public.
Marissa Mayer once stated that she would enhance relations with Alibaba, and her efforts seem to have paid off. On Tuesday, Mayer said that during Alibaba's IPO, Yahoo only needs to sell 208 million Alibaba shares instead of the previously planned 261.5 million shares. This means that if Alibaba's stock price rises after its IPO, Yahoo will stand to gain even more profits.
During the earnings call, Mayer tried hard to convince the outside world that Yahoo's own business is also making progress in the right direction. For example, the trend of declining users has stopped, and they have also designed a new logo.
However, Mayer's statements were not sufficiently convincing. Yahoo still needs to make great efforts to turn its user size advantage into an advertising revenue advantage. Market research firm eMarketer predicts that this year, Yahoo's share of the U.S. online advertising market will drop from last year's 8.6% to 7.7%. Additionally, 2013 will be the last year that Yahoo's advertising revenue remains ahead of Facebook's.
Mayer expects shareholders to have enough patience. She stated that with the growth of user traffic, there will be a corresponding increase in advertising revenue, "but it's hard to specify exactly when the growth will occur."