What will Yahoo Inc. do with $8B Cash Influx from Alibaba’s IPO?

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By Chris Hillman on September 19, 2014 Company, Intl News, Technology & Software

Andrew Frank, analyst at Gartner Research states that Yahoo Inc. (NASDAQ:YHOO) will be receiving a huge influx of cash due to the Alibaba Group Holding Ltd (NYSE:BABA) deal. This may lead to them having pressure of where they should allocate the cash.

Meyers, CEO of Yahoo! Inc. (NASDAQ:YHOO) has pressure to fix the core business. The core business is advertising. Her advertising technology is antiquated, and there’s pressure to fix the mobile business. She needs to make acquisitions to bolster that. Acquisitions that drive technology would be essential. The media company play is what Yahoo! Inc. (NASDAQ:YHOO) needs to adopt. They need to focus on buying better content and better distribution. Instead of one specific site or offering, they have many sites.

Yahoo always had a tension that they are in Sillicon Valley and that they had to be a tech company. In today’s world, great content have to be integrated with technology. News companies that are dying, are too dependent on old technology and failed to innovate.

It’s an interesting dilemma that Yahoo! Inc. (NASDAQ:YHOO) was contemplating getting rid of all its Asian assets including Alibaba and Yahoo Japan for $10 billion. But these assets are now worth close to $50 billion as of today’s market price. Yahoo owes a lot to Jerry Yang for Alibaba.

Alibaba Group Holding Ltd (NYSE:BABA)’s top share holders includes: Softbank at 32.4%, Yahoo at 16.43%, Jack Ma at 7.8%, Joseph Tsai at 3.2%, and Silver Lake at 2.2%. Dan Loeb did bring in Marissa Meyers but wanted to sell half its Alibaba’s stake to Alibaba for $7 billion. The chinese government feels threatened that 80% ownership was by foreigners, so Jack Ma, CEO of alibaba felt pressured to buy back some shares from Yahoo! Inc. (NASDAQ:YHOO). As a result Yahoo had no choice but had to give back half its stake.

Alibaba Group Holding Ltd (NYSE:BABA) made a commitment to go public as a result of the sale, and they have kept their word. There is a lot of symbiosis together. Alibaba has access to Yahoo in the United States. The infrastructure exists for Alibaba to tap into Yahoo’s resources as well.

One speculator questions if Alibaba Group Holding Ltd (NYSE:BABA) and Amazon (NASDAQ:AMZN) could do a deal together. This is unlikely. But, Alibaba could partner with Yahoo in a creative way. Yahoo is still a good brand to consumers and hasn’t been completely forgotten in the minds of Americans. Alibaba even considered buying Yahoo! Inc. (NASDAQ:YHOO), and the ownership Yahoo has in Alibaba. It would solve the government issue. But Jack likes organic growth.

Eric Hippeau, partner at Lerer Hippeau Ventures states:

“We will do everything to help the small vendor or small person. Ma may try to take the market place model to the United States. Amazon is flawed because they take ownership of the merchandise. Alibaba is purely a drop shipping company and a platform like Ebay. If you import that model into the United States, you could have substantial success here.”

Companies that should feel threatened includes Yahoo! Inc. (NASDAQ:YHOO) as they have pressure to innovate.

But the Tao Bao online service could become a big game changer according to Frank and this should be something that’s watched closely.