Yahoo (NASDAQ:YHOO) Benefits from previous Alibaba (NYSE:BABA) Investment

The American multinational- Yahoo (NASDAQ:YHOO) – has made a breakthrough at last. With so many years of struggle and jeopardy, the company decided to make an investment in a recently IPO’d company- the Chinese retailer, Alibaba (NYSE:BABA). This past Thursday, Alibaba (NYSE:BABA) launched its IPO which helped raise $25 billion, thus having its shares being traded on the New York Stock Exchange the first time this Friday.

Yahoo (NASDAQ:YHOO) played smart and invested in Alibaba (NYSE:BABA) beforehand and now the company is about to make around $8.3 billion to nearly $9.5 billion with this IPO. This however, is in the hands of bankers because once they exercise the rights they will be able to buy additional stock. The internet giant is playing safe this time by working backstage in reaping benefits from its investments. Even if the company decided to sell its 140 million in shares it will end up with a 16% ownership in Alibaba (NYSE:BABA).

This will give it a worth of nearly $36-$38 billion. These returns are enormous considering that Yahoo (NASDAQ:YHOO) bought its stake for around $1 million back in 2005. The deal was carried out by the co-founder of the company Jerry Yang along with Terry Semel, the former CEO. Yahoo (NASDAQ:YHOO) is still facing tough competition from rivals like Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) who have better digital services as some say.

There is not much that advertisers can do about Yahoos (NASDAQ:YHOO) appeal problems, as they have stopping advertising so much on Yahoo (NASDAQ:YHOO). Even though the investment in Alibaba (NYSE:BABA) proved to be one smart decision indeed, Yahoo’s (NASDAQ:YHOO) revenue continues to fall. It went from $7.2 billion to $4.5 billion over the past six years up till now. This decline was a fatal 40%.

Yahoo (NASDAQ:YHOO) had to go through major changes in its business with seven diverse CEO’s one after the other trying to pull the business back up to a stable position. This included Marissa Mayer, the current CEO who also tried to rejuvenate the growth of the company. The once $9 stock of Yahoo (NASDAQ:YHOO) in 2008 has pulled up to $43 this year. The company pulled up its socks in the previous two years when investors tried to grab the company’s stocks so that they could profit from the success of Alibaba’s (NYSE:BABA) IPO.

The returns from the investment in Alibaba (NYSE:BABA) are said to be divided. Half will go into dividends for shareholders to profit from after taxes or used to buy back stocks. The other half will be used in financing the acquisition of yet another internet company. This may be AOL (NYSE:AOL) or Pinterest. Nothing is sure however as no statement has been made by the company on this. All eyes are on Yahoo (NASDAQ:YHOO) as to how it plays out with an old stable company or a new startup in this social media hype. With the success in the Alibaba (NYSE:BABA) investment, the company may be on strong grounds to make more thus increasing its stakes in other businesses as well.