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Yahoo to Spin Off Its Stake in Alibaba Yahoo to Spin Off Its Stake in Alibaba
(about 1 hour later)
SAN FRANCISCO — Marissa Mayer, chief executive of Yahoo, said on Tuesday that the Internet company would spin off its 15.4 percent stake in Alibaba, China’s leading e-commerce company, into a separate company, avoiding any taxes on the transaction. SAN FRANCISCO — Marissa Mayer, chief executive of Yahoo, said on Tuesday that the Internet company would spin off its 15.4 percent stake in Alibaba, China’s leading e-commerce company, into a separate company.
The decision, which Wall Street has been waiting for since Ms. Mayer joined the company in 2012, cheered shareholders since they will directly reap all the remaining profit from Yahoo’s prescient investment, which cost virtually nothing a decade ago but is now worth about $39.5 billion. The decision, which Wall Street has been waiting for since Ms. Mayer joined the company in 2012, cheered shareholders because they will directly reap all the remaining profit from Yahoo’s prescient investment, which cost almost nothing a decade ago but is now worth about $39.5 billion.
The Alibaba stake alone now makes up nearly 85 percent of Yahoo’s market value. In the process, Yahoo will avoid any taxes on the transaction but will be stripped of its single most valuable asset. The Alibaba stake alone now makes up nearly 85 percent of Yahoo’s market value.
“We felt maximum tax efficiency was important in our role as stewards of capital,” Ms. Mayer said in a conference call with investors. Resolving the Alibaba question now turns the spotlight on Ms. Mayer’s plans to turn around Yahoo’s core Internet advertising business, which has dealt with years of declining revenue as advertisers and Internet users switched their money and attention to flashier, more innovative services from competitors like Google, Facebook and Twitter.
The immediate reaction to the announcement was positive, with investors driving Yahoo’s stock up about 6 percent in after-hours trading after disclosure of the plan. Ms. Mayer delivered a report card on her turnaround plan on Tuesday, noting that overall revenue and profit fell in the fourth quarter. But the company’s mobile businesses, as well as other newer initiatives, like so-called native ads, showed rapid growth.
Still, the immediate reaction to the Alibaba announcement was positive, with investors driving Yahoo’s stock up about 7 percent in after-hours trading after disclosure of the plan.
“It’s kind of hard not to view it as an unadulterated positive,” said Mark Mahaney, who follows the Internet industry for RBC Capital Markets. “This was the single biggest issue raised by activists.”“It’s kind of hard not to view it as an unadulterated positive,” said Mark Mahaney, who follows the Internet industry for RBC Capital Markets. “This was the single biggest issue raised by activists.”
Resolving the Alibaba question now turns the spotlight to Ms. Mayer’s plans to turn around Yahoo’s core Internet advertising business, which has had years of declining revenue as advertisers and Internet users switched their money and attention to flashier, more innovative services from competitors like Google, Facebook and Twitter. The Alibaba news overshadowed Yahoo’s report on its fourth-quarter results, which gave little indication that Ms. Mayer’s turnaround plan was taking hold.
Ms. Mayer delivered a report card on her turnaround plan on Tuesday, noting that overall revenue and profits fell in the fourth quarter but that the company’s mobile businesses, as well as other newer initiatives such as so-called native ads, showed rapid growth. Yahoo reported revenue of $1.25 billion and adjusted profit of 30 cents a share in the quarter, slightly exceeding Wall Street’s expectations. Analysts had on average expected the company to report revenue of $1.18 billion and adjusted earnings of 29 cents a share, according to data collected by S&P Capital IQ.
“I’m pleased to report that our performance in Q4 and in 2014 continues to show stability in our core business,” Ms. Mayer said in a statement accompanying the financial results. “Our mobile strategy and focus has transformed Yahoo and yielded significant results.” The company’s net income was $166 million, or 17 cents a share, in the fourth quarter, compared with $348 million, or 33 cents a share, in the same quarter a year ago.
Yahoo reported revenue of $1.25 billion and adjusted profits of 30 cents a share, slightly exceeding Wall Street’s expectations. Analysts had on average expected the company to report revenue of $1.18 billion and adjusted earnings of 29 cents a share, according to data collected by S&P Capital IQ.
The company’s net income was $166 million, or 17 cents a share, in the fourth quarter, compared to $348 million, or 33 cents a share, in the same quarter a year ago.
Yahoo sold a hefty chunk of its stake in Alibaba in September when the Chinese company sold shares in an initial public offering. Yahoo had a $10.3 billion gain from the sale, but nearly 40 percent of that was eaten up by taxes.Yahoo sold a hefty chunk of its stake in Alibaba in September when the Chinese company sold shares in an initial public offering. Yahoo had a $10.3 billion gain from the sale, but nearly 40 percent of that was eaten up by taxes.
Yahoo executives promised shareholders that they would find a way to dispose of the rest of the Alibaba stake in a way that incurred a much lower tax bill. The solution they chose — a spinoff of the Alibaba stake and a Yahoo operating business — avoids $16 billion in corporate taxes that Yahoo would have owed if it had simply sold the stake, executives said. Instead, investors will receive shares in the spun-off company in proportion to their stake in Yahoo, and will pay taxes on their capital gains when they sell those shares. The spinoff is expected to be completed in the fourth quarter. Yahoo executives promised shareholders that they would find a way to dispose of the rest of the Alibaba stake in a way that incurred a much lower tax bill. Their solution — a spinoff of the Alibaba stake and a Yahoo operating business — avoids $16 billion in corporate taxes that Yahoo would have owed if it had simply sold the stake, executives said.
One investor, the activist hedge fund Starboard Value, had threatened to wage a fight over the company’s board if it was unhappy with Ms. Mayer’s strategy. Starboard did not respond to a request for comment on Yahoo’s spinoff plan. Investors will receive shares in the spun-off company in proportion to their stakes in Yahoo, and will pay taxes on their capital gains when they sell those shares. But the plan will not give Yahoo a new pile of cash with which it could make big acquisitions.
The spinoff is expected to be completed in the fourth quarter.
One investor, the activist hedge fund Starboard Value, had threatened to wage a fight over the company’s board if it was unhappy with Ms. Mayer’s strategy. Starboard did not respond to requests for comment on Yahoo’s spinoff plan.
An Alibaba spokesman also declined to comment.An Alibaba spokesman also declined to comment.
Yahoo said it was not ready to discuss its plans for its other large investment, its 36 percent stake in Yahoo Japan, worth $7.3 billion. Although Yahoo has signaled that it would eventually like to dispose of that stake, too, the two companies have some intertwined operations and share intellectual property, so unwinding the relationship would be more complicated than the Alibaba spinoff.Yahoo said it was not ready to discuss its plans for its other large investment, its 36 percent stake in Yahoo Japan, worth $7.3 billion. Although Yahoo has signaled that it would eventually like to dispose of that stake, too, the two companies have some intertwined operations and share intellectual property, so unwinding the relationship would be more complicated than the Alibaba spinoff.
Yahoo’s principal business — selling ads against articles, videos and search results shown to its hundreds of millions of visitors — continues to falter. Yahoo was late to recognize that people around the world were switching to mobile phones and tablets for access to the Internet, leaving it to play catch-up when Ms. Mayer arrived.Yahoo’s principal business — selling ads against articles, videos and search results shown to its hundreds of millions of visitors — continues to falter. Yahoo was late to recognize that people around the world were switching to mobile phones and tablets for access to the Internet, leaving it to play catch-up when Ms. Mayer arrived.
In 2014, Yahoo’s share of the $146.4 billion worldwide digital ad market fell to 2.36 percent, according to eMarketer, a research firm. Google, the market leader, had 31.1 percent of the market, and Facebook had 7.75 percent.In 2014, Yahoo’s share of the $146.4 billion worldwide digital ad market fell to 2.36 percent, according to eMarketer, a research firm. Google, the market leader, had 31.1 percent of the market, and Facebook had 7.75 percent.
Ms. Mayer said on the conference call that the company was seeing strong growth in its mobile, video, social, native advertising businesses — a group she called “the mavens.” She said that collectively, revenue from the mavens grew 95 percent in the fourth quarter compared to the same quarter in 2013. For the full year, those businesses brought in $1.1 billion in revenue. Ms. Mayer said in a conference call that the company was seeing strong growth in its mobile, video, social and native advertising businesses — a group she called “the mavens.” She said that collectively, revenue from the mavens grew 95 percent in the fourth quarter compared with the same quarter in 2013. For the full year, those businesses brought in $1.1 billion in revenue.
Yahoo said that it had 575 million monthly users on mobile devices in the fourth quarter, including users of its Tumblr social network, up 18 percent compared to the previous year. Yahoo said that it had 575 million monthly users on mobile devices in the fourth quarter, including users of its Tumblr social network, up 18 percent compared with the previous year.
But revenue from Yahoo’s traditional businesses continued to flag. Display advertising — the banner ads that made the company a juggernaut a decade ago — fell about 4 percent, and revenue from Internet searches was up 1 percent.But revenue from Yahoo’s traditional businesses continued to flag. Display advertising — the banner ads that made the company a juggernaut a decade ago — fell about 4 percent, and revenue from Internet searches was up 1 percent.
The company also gave disappointing projections for its performance in the first quarter, Mr. Mahaney said. “There is no news here that tells you Yahoo has fundamentally turned the corner,” he said.The company also gave disappointing projections for its performance in the first quarter, Mr. Mahaney said. “There is no news here that tells you Yahoo has fundamentally turned the corner,” he said.
Ms. Mayer, who built her reputation overseeing Google’s Internet search business, said that Yahoo remains committed to search. Ms. Mayer, who built her reputation overseeing Google’s Internet search business, said that Yahoo remained committed to search.
The company is discussing changes to its 10-year search partnership with Microsoft, which is at the midway mark. In November, Yahoo struck a deal to displace Google as the default search sevice on Mozilla’s Firefox web browser, which accounts for 3 percent to 5 percent of searches. The company is discussing changes to its 10-year search partnership with Microsoft, which is at the midway mark. In November, Yahoo struck a deal to displace Google as the default search service on Mozilla’s Firefox web browser, which accounts for 3 to 5 percent of searches.
Ms. Mayer said Yahoo would also seek to replace Google as the default search engine on Apple’s Safari browser. “Safari users are the most engaged and lucrative in the world,” she said. Ms. Mayer also said Yahoo would seek to replace Google as the default search engine on Apple’s Safari browser. “Safari users are the most engaged and lucrative in the world,” she said.