Yahoo Falls as Alibaba's Revenue Growth Slows

Zacks

Yahoo Inc.’s (YHOO) shares tumbled 5.8% to settle at $34.81 after the Chinese e-Commerce giant, Alibaba, threw some light on its latest financials.

Alibaba, which is expected to be the next major Internet IPO in the U.S. market, close to Facebook Inc. (FB), which raised about $16 billion in the 2012 IPO, stated that its revenue growth slowed significantly in the fourth quarter of 2012.

Alibaba’s updated filing with the U.S. Securities and Exchange Commission revealed that the company’s fiscal 2014 revenues increased 52.1%, slower than the 72.4% growth in fiscal 2013. Additionally, for the three months ended Mar 31, 2014, the operating margin increased to 45.3% versus an increase of 51% in the year-ago quarter.

With 22.6% stake in Alibaba it is currently the most valuable asset owned by Yahoo. The company’s fortunes are closely tied with Alibaba and therefore any news of a slowdown in Alibaba’s financial results just ahead of the IPO is a concern for Yahoo shareholders.

The weakness in Yahoo's stock price indicates that some investors now expect Alibaba’s IPO to fetch less money than expected. Yahoo is required to offload 40% of its holdings when the IPO is filed.

Additionally, Alibaba announced that its strategy will be controlled by a 27-member board of directors, including 22 representatives of its management team and 5 of its affiliates. The board will also include four independent directors, including Tung Chee Hwa, former chief executive and President of the Executive Council of Hong Kong, and Jerry Yang, a co-founder of Yahoo.

Since 2006, Yahoo has been striving to improve its financials and build shareholders’ confidence. However, since Marissa Mayer took over Yahoo’s reins, there has been a tremendous drive to optimize Yahoo products for mobile devices as well as an intense focus on building more engaging content. The efforts have not had a material impact on Yahoo’s results yet, with shares mostly responding to the strength in Alibaba and the company’s stake in Yahoo Japan.

Yahoo currently carries a Zacks Rank #3 (Hold). Other stocks performing well at present include Rovi Corp. (ROVI) and LivePerson Inc. (LPSN), both of which sport a Zacks Rank #1 (Strong Buy) and are therefore worth considering.

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