(By Mani) Shares of Yahoo, Inc.
) gained as much as 7 percent after Bloomberg reported that the internet company is in talks to sell about 20 percent of Alibaba Group Holding Ltd. back to the Chinese Internet company for about $7 billion.
Citing a person familiar with the situation added that Yahoo has come close to selling the stake before, but the talks have collapsed.
Investors have long been urging Yahoo board to make a decision on its Asian assets, especially Alibaba group, and unlock value to the shareholders. Shares of Yahoo have dropped 7 percent in the past one year and 9 percent year-to-date. They have plunged 48 percent in the past 5 years and fallen steeply from the highs of $108 in December 1999.
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On May 14, iStock indicated that with a new board at the helm, Yahoo may make a decision on the asset sale of Alibaba to reinvent itself by investing in new growth areas besides unlocking shareholders value.
Yahoo holds 42 percent stake in Alibaba, whose e-commerce interests hold a dominant position in the "B2B" industry. Alibaba Group's Taobao business is essentially Ebay and Amazon on steroids in terms of market share and revenue growth.
According to Goldman Sachs, the Chinese e-commerce market was $75 billion in 2010, with a 3 year forward compound annual growth rate of 43 percent compared to the $193 billion U.S. market with compound annual growth of 14 percent over the same period.
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Daniel Loeb, whose Third Point LLC holds a 5.8 percent stake in Yahoo, waged a proxy battle against the company and said he estimates a pre-tax value for Alibaba Group of $25 billion. Given Alibaba Group's growth potential and market share, it is entirely conceivable that Yahoo's 40 percent fully diluted stake in Alibaba Group could double in value over the next 2-3 years, highlighting its tremendous value.
Recently, Yahoo entered a truce with Loeb and offered board seats after the hedge fund investor alleged that Yahoo's ex-CEO Scott Thompson hadn't earned a computer science degree from Stonehill College, ultimately leading to the departure of the former Paypal executive.
Thompson, who reportedly disclosed that he had been diagnosed with thyroid cancer, was succeeded by Ross Levinsohn on an interim basis. Levinsohn, an internet veteran, is also the executive vice president and head of global media of Yahoo.
Yahoo, which lost its fourth CEO in five years and second in less than a year, also named Fred Amoroso as Chairman of the Board of Directors, replacing Roy Bostock, who has stepped down from his role as Non-Executive Chairman.
Yahoo had been in rough waters after it lost its search and display share to Google, Inc. (NASDAQ:GOOG) and rejected a $47.5 billion, or $33 a share, takeover bid from Microsoft Corp. (NASDAQ:MSFT). Currently, Yahoo shares are trading in the $15 range with a market cap of $19 billion.
In addition, California-based Yahoo suffered from a bungled and disappointing search deal with Microsoft, a series of misguided CEO selections, and the Alipay debacle. Under Thompson's brief tenure for over 7 months as CEO, Yahoo laid off 2,000 workers before shutting down several of its less popular services. Even, Facebook, Inc. (NASDAQ:FB), which went public today, is emerging as a significant threat to Yahoo's business.
For the first quarter, Yahoo's profit rose 28 percent, driven mainly by higher search revenues. Revenues grew for the first time in three years, with earnings and revenue figures topping Wall Street expectations. The company ended the quarter with $2.65 billion in cash, cash equivalents and marketable securities.
The company expects revenues excluding traffic acquisition costs in the range of $1.03 billion to $1.14 billion in the second quarter. Total revenues for the second quarter are expected to be in a range of $1.17 billion to $1.29 billion. Analysts currently estimate revenues of $1.09 billion for the quarter.