Yahoo's second-quarter results, released late Tuesday, were unimpressive at best. Sales shrank 1% year over year, and the company forecasts no improvement in the third quarter. Ms. Mayer has little to show for her efforts a year after becoming CEO.
Still, Yahoo shareholders didn't seem to mind: The stock jumped 7% on Wednesday and now trades at a five-year high.
How to solve the puzzle,easy Yahoo owns 24% of Alibaba. On Tuesday the Chinese e-commerce giant published its financial results Its first-quarter sales jumped 71% year over year to nearly $1.4 billion. Meanwhile, thanks to high and rising margins, operating profit more than tripled to $700 million.
So investors keep buying Yahoo stock as a proxy for as-yet unlisted Alibaba. An initial public offering is expected soon, and assuming a conservative valuation of US$ 90 billion,and the after-tax value of Yahoo's stake would still be worth $15 billion, or about $14 a share. Add in Yahoo's stake in Yahoo Japan worth around $5 a share, as well as $4 a share of cash and Yahoo's core business is today valued at less than $6 a share.
Alibaba's expected valuation provides a good foundation for Yahoo's stock, while Ms. Mayer battles to turn around the aging Internet giant. She has started with multiple "acqui-hires": buying small companies for their people, not their products. The hope is that the pricey talent can hit product home-runs at Yahoo. Meanwhile, the recent $1.1 billion deal to buy blogging service Tumblr gives Yahoo a better foothold in social media, though it will take time to get its users comfortable with seeing ads.
But these things don't happen overnight. Alibaba is buying Ms. Mayer some crucial time.
