CEO: Yahoo Will Spin Off Its Stake in Alibaba

Yahoo chief executive Marissa Mayer said on Tuesday that the U.S.-based internet company would spin off its remaining 15.4 percent stake in Chinese e-commerce giant Alibaba to form a separate entity. Yahoo will not have to pay any taxes on the transaction, which is worth US $39.5 billion, unlike its divestment in September 2014 of a US $10.3 billion portion of the Alibaba stake, 40 percent of which went to taxes. (That divestment took place at the time of Alibaba’s initial public offering.) However, the proceeds of the present deal will go to shareholders and will not constitute a cash fund for future acquisitions. The spin-off is expected to be completed in the fourth quarter of this year.

Alibaba is so huge that Yahoo’s 15.4 percent stake made up almost 85 percent of its value. Nonetheless, the spinoff was long awaited by shareholders and observers, ever since Mayer, former head of the internet search department at Google, took over. Alibaba’s e-commerce is very different from Yahoo’s original core business, digital advertising, which has been sagging recently, despite the exponential growth in the sector worldwide. In 2014 the digital ad market was worth US $146.4 billion, of which Yahoo had only 2.36 percent, compared to Google’s 31.1 percent. The massive spinoff should allow Yahoo to refocus on internet advertising. Other areas in which a slimmed-down Yahoo intends to compete more intensely and effectively, according to Mayer, is in mobile advertising, social media, and video content.

Google has truly invaded the mobile market, with its Android operating system, app content, OTT messaging services and, most recently, its own soon-to-be-launched MVNO. Yahoo has lagged behind Google in embracing and profiting from the mobile revolution, but under Mayer it appears bent on making up for lost time. The spin-off of its Alibaba stake, while it may not provide the company with the wherewithal to do so, at least signals the intention. 

The above item appeared in a recent issue of Tarifica's "The Story of The Week", a weekly report that analyzes noteworthy developments in the telecoms industry from around the world. For past issues or to learn more about The Story of The Week or to contact the Tarifica Research department:  http://www.tarifica.com/contactus.aspx