The fourth quarter results of Yahoo! Inc. (YHOO, Financial) search engine giant was not that interesting but the announcement of the spinoff of the stake in Alibaba Group Holdings Limited (BABA, Financial)Â raised several eyebrows. And in fact, it was the surprising element in the quarter earnings conference call that aided the stock to jump about 6% in the after-hours as investors digested the news of the spinoff and formation of an independent entity. Let’s dig deeper and find out what got shared by the CEO, Marissa Mayer, during the earnings call that sounded like music to the ears of the tensed investors.
The quarter numbers
The report revealed that Yahoo! has been able to manage revenues of $1.18 billion, slightly below the $1.185 billion estimate by the Street. Also the adjusted EPS came to $0.30 a share, narrowly beating the analyst expectations of $0.29 per share for the quarter. Yahoo!’s core business has been struggling amid intense competition from rivals such as Google and Facebook who are ahead in their advertising efforts and thus even in the fourth quarter the price per display for Yahoo!’s ads fell almost 20%. However, the 20% decline is expected to be offset by channels such as social, mobile and video. Moreover, the CEO has shared her concerns on the drop of advertising revenue and is looking into potential partnerships with tech honchos like Microsoft (MSFT, Financial) and Apple (AAPL, Financial) in the long term.
The good news shared
In an attempt to extend her tenure as CEO, Mayer finally passed the information for which investors have long yearned – a tax-free spinoff of Alibaba shares. Yahoo! announced recently that the 15% stake it currently holds in Alibaba would be spun off into a new entity named SpinCo. SpinCo would operate as an independent entity and through this process the shareholder value would get maximized and there would be optimization in transaction efficiency.
By exercising this move, Yahoo! would be able to save the $16 billion of the $40 billion from taxation. Investors had already begun to press the management to find tax-efficient strategies to help monetize the 384 million shares stake in the Chinese ecommerce giant. The crucial point that has left investors tensed on its stake in Alibaba was whether Yahoo! would sell the stake in Alibaba and hence incur heavy taxation on capital gains, thereby impacting its bottom line considerably.
This spinoff would get finalized by the fourth quarter of 2015 after the lockup period on the Alibaba stake terminates. The new entity would be an “independent registered investment company” and almost 97% of the proceeds would be passed over to the investors. Hence, the news of the spinoff was welcomed by the investor community, and it did pacify the restless Yahoo! investors in one go.
Final word
With Alibaba’s stake being spun off by end of the next fiscal year, the CEO will now have to focus upon the core business areas to grow their revenue in the long term. But this spinoff news has again rejuvenated the investors who were worried about the company’s future plans and the company’s earnings call have clearly wiped off all such concerns.
