Yahoo Clutches Alibaba Stake As Profits Slide

Yahoo said it will retain a larger than expected stake in the Chinese e-commerce giant Alibaba, apparently hoping that Alibaba’s potentially record-breaking IPO will make up for Yahoo’s latest ‘disapointing’ financial report.

For the second quarter ending 30 June, Yahoo revealed that its profit had fallen 18 percent to $272m (£159m) from $335m (£196m) in the same year-ago quarter. There was also bad news on the sales side, with revenues down 3 percent to $1.08bn (£633), down from $1.14bn (£666m) a year earlier.

Mayer blames adverts

CEO Marissa Mayer expressed her disappointment at the results, and blamed the decline mostly on digital display advertising, which plunged 8 percent in the second quarter. Matters have not been helped when Yahoo also revealed that its price-per-ad (i.e the amount Yahoo charges advertisers for digital ads) fell by approximately 24 percent – compared to the second quarter of 2013.

“Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results,” said Mayer. “While several areas showed strength, their growth was offset by declines. Yahoo Search, for example, had a strong quarter, growing 6 percent year-over-year on a revenue ex-TAC basis and 19 percent year-over-year in search click-driven revenue.”

“Our social, mobile, video and native areas also grew with significant momentum, collectively gaining nearly 90 percent year-over-year,” she said. “However, display remains an area of investment and transition. In Q2, we saw display revenue decline, further highlighting the fact that we need to work faster to ameliorate the negative trends.”

“I believe we can and will do better moving forward,” said Mayer. “Overall, I remain confident in Yahoo’s future, our strategy, and our return to long-term growth.”

Alibaba Lifeline

Despite the grim results, Yahoo still has a big gun in its arsenal, namely its 24 percent stake in Chinese e-commerce giant Alibaba, which is expected to go public later this year.

Its public listing is expected to be the largest ever tech IPO. Indeed, analysts believe that Alibaba’s market value could range anywhere from $150 billion (£90bn) and $200 billion (£119bn) by the time it goes public. That would provide Yahoo a substantial block of cash when it chooses to sell its Alibaba stock.

And Yahoo pleased investors when it revealed it would be retaining a larger-than-expected piece of its stake in Alibaba.

“Yahoo requested and Alibaba Group agreed to an amendment to the share repurchase agreement that reduces the maximum number of shares that Yahoo is required to sell in connection with Alibaba’s initial public offering from 208 million shares to 140 million shares,” said the company.

“It remains a very large fig leaf,” Pivotal Research Group analyst Brian Wieser was quoted as saying by Reuters, concerning Yahoo’s Alibaba stake. Wieser said the Alibaba “obscures” Yahoo’s weak results. “A lot of investors will certainly view it very favourably that they’re holding on to more” of Alibaba.

“Anytime you can keep more of an asset that’s growing as fast as Alibaba is, that’s a good thing,” said JMP Securities analyst Ronald Josey also told Reuters.

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