Yahoo (NASDAQ:YHOO) investors concentrate on Alibaba’s cash and core business


Yahoo’s (NASDAQ:YHOO) CEO, Marissa Mayer will be the center of attention once again when Yahoo will disclose its earnings after Tuesday’s closing. The company is under growing investor pressure because its main business is passing through difficult times along with declining stakes in Alibaba (NYSE:BABA). Mayer will have to respond to a lot of queries during the conference.

Investors would definitely be focusing on CEO Mayer’s planning regarding utilization of Yahoo’s earnings from Alibaba’s initial public offering. They would also be focusing on the company’s actions for the growth of its core advertising businesses. According to a part of the agreement made in 2012, Yahoo traded part of its stakes in the Chinese company Alibaba and was able to generate in excess of $5 billion in cash from Alibaba IPO. As published in the Wall Street Journal, Yahoo (NASDAQ:YHOO) desires to procure one or more large technology start-ups spending some part of this money. Yahoo’s investors would not be favoring any move leading towards prospects of acquiring large entities due to the fact that turnaround strategy of Mayer is under close scrutiny after IPO of Alibaba (NYSE:BABA).

With the aim of enhancing shareholders value, Starboard Value hedge fund advised the CEO in September to stop acquisitions. They were also advised to reduce costs, explore chances of merger with AOL and increase the worth of Yahoo’s assets in Asia through better tax management.  However, it is expected that these suggestions would be confronted by Mayer. She would present her efforts towards cost reduction and would elaborate company’s processes while finalizing acquisitions. Ben Schachter an analyst with Macquarie Research indicated that the investor’s pressure would keep on mounting till the time Yahoo demonstrates long-term expansion in its core businesses. According to Schachter, obvious drivers for Yahoo’s (NASDAQ:YHOO) stock price are Alibaba’s cash and prospects for tax efficiency. Yahoo’s stock closed near $39 on Monday against the target of $40.

Mayer took over as Yahoo’s CEO two years back and even till this day she has not been able to achieve robust growth in the company’s core advertising businesses. Youssef Squali an analyst with Cantor Fitzgerald pointed out that for Yahoo 2013 was for right-sizing, investments and acquisitions. Whereas, monetization and growth revival goals for year 2014 are hard to achieve.

Yahoo (NASDAQ:YHOO) is expected to declare earnings of 30 cents per share o$1.05 billion revenue for third quarter, which is about 11 percent decline over the years on the bottom line and a 3 percent decline of top line.

RBC predicts that since Yahoo is facing stiff competition from Google (NASDAQ:GOOG) and others so there will be 7 percent decline in display revenue excluding traffic acquisition costs (ex-TAC). Yahoo’s last quarter performance was dismal as 8 percent decline to $436 million was reported. Besides Yahoo’s (NASDAQ:YHOO) search revenue has also shown signs of deceleration this year, the growth which stood at 9 percent in the first quarter was reduced to 6 percent (ex-TAC) in the second quarter and is estimated to grow by mere 4 percent in the third quarter.

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