Yahoo's! Mayer!: We'll! spin! off! $40bn! Alibaba! stake! and! pay! ZERO! tax! on! it! Ha!
Y! says 'close, sesame' to its lucrative slice – but where will its profits come from now?
Yahoo! has announced plans to sell off all of its remaining stake in Chinese online giant Alibaba, even as its latest earnings report shows a company struggling to pull in revenue on its own.
The Purple Palace said on Tuesday that it will spin off all of its remaining holdings in Alibaba – some 384 million shares worth an estimated $40bn, or 89 per cent of Yahoo!'s own current market capitalization – into a new, independent company known as SpinCo. Stock in SpinCo will be distributed pro rata to existing Yahoo! shareholders.
"Throughout my tenure with the company, we have worked tirelessly on a tax-efficient alternative that would maximize the value of our Alibaba investment for our shareholders," Yahoo! CEO Marissa Mayer said in a canned statement. "A tax-free spin off accomplishes this and delivers value directly and exclusively to our shareholders."
Mayer went on to describe the nearly $50bn of capital that Yahoo! will have returned to its shareholders following the spinoff – which is subject to regulatory approval – as "historic."
The move will leave Yahoo! focused on its core business, along with the 35.5 per cent stake it holds in sister company Yahoo! Japan.
While investors seemed buoyed by the news, however, the decision to pull out of Alibaba leaves plenty of questions as to how Yahoo! will return to growth – particularly given that some analysts have reckoned that the Purple Palace's Alibaba stake is worth more than anything it's been doing on its own.
In search of black ink at the Purple Palace
Growth was definitely not the watchword for Yahoo!'s fiscal 2014, which ended on December 31. Total revenues for both the fourth quarter and the full fiscal year were essentially flat, at $1.25bn and $4.62bn, respectively.
It could be seen as a measure of Wall Street's skepticism toward the firm, however, that both figures beat analysts' estimates, as did Yahoo!'s quarterly earnings of $0.30 per diluted share.
The firm's net income for the quarter, on the other hand, was just $169.28m, down 52 per cent from the same period a year ago. And even excluding various accounting items, such as taxes, depreciation, amortization, charges related to stock-based compensation, and goodwill impairment, Yahoo!'s non-GAAP income from operations for Q4 was $256,000, a 22.4 per cent decline.
Net income for the full year was $7.53bn – on the surface, a terrific 447 per cent leap. But most of that was proceeds from sales of Alibaba shares. Ignoring all of the aforementioned accounting items, Yahoo!'s non-GAAP income from operations for all of fiscal 2014 was down 19.3 per cent, to $755,000.
During a conference call with financial analysts on Tuesday, Mayer said she was confident that Yahoo! was well positioned to return to growth. She said the firm was particularly focused on what she termed its "MaVeNS" investment areas – mobile, video, native, and social – which she observed weren't even on the company's radar when she joined as CEO in 2012.
Combined, those four areas brought in $380m in revenues for the fourth quarter and $1.1bn for the full fiscal year, she said. Most of that came from mobile, which brought in fourth quarter revenues of $254m and $768m in revenues for fiscal 2014.
"We have created more than $1bn of revenue, basically from nothing, in just two years," Mayer crowed.
But creating a business is one thing and growing it is another. Mayer said Yahoo!'s monthly mobile active users were up 18 per cent in Q4 versus the year-ago quarter – but we'll have to take her word for it, as the firm began using a new method of counting those users in the fourth quarter.
Meanwhile, Yahoo!'s traditional, PC-oriented businesses remained stagnant. Search revenues were flat at $467m, despite increases in both the number of paid clicks and the amount that advertisers paid per click. Revenues from display advertising were down 4 per cent, to $532m. The number of ads sold was up 17 per cent, but the average price per ad was down 20 per cent.
Investors didn't seem bothered by such trivialities, however, chuffed as they were at the prospect of the Alibaba spinoff. Although shares in the Purple Palace dipped slightly before the closing bell, eager investors sent them bouncing back up by 7.25 per cent in after-hours trading. ®