Yahoo’s up about 7% in post market trading after the company said that it will give its investors stock in a new company that will hold $40 billion worth of Alibaba shares it owns, about 15.4% of the total. The new entity will have no debt. The change will leave Yahoo with its mostly ad-supported Web businesses plus a 35.5% stake in Yahoo Japan. The spin off is expected to take place toward the end of 2015, after a one-year lock up agreement expires.
Yahoo had earlier given shareholders about $9.7 billion from sales of its stock in the giant Chinese e-retailer. With the newly announced spin off, Yahoo has given its investors an amount that’s “historic, especially for a company of our size,” CEO Marissa Mayer says. “The plan announced today vividly demonstrates our commitment to being good stewards of capital and increasing shareholder value.”
Activist investors led by Starboard Value have been lobbying Mayer to unload Alibaba shares and give cash to shareholders via dividends or stock repurchases. CFO Ken Goldman told the Street three months ago that he was working on “promising structures” that would deliver “enormous value to our shareholders.”
[Speaking of Alibaba, yesterday Hong Kong-based Alibaba Pictures Group, which is majority owned by the e-retailer, told shareholders that it expects to record a loss of HK$600M ($77.4M) for 2014, with revenue expected to decrease “significantly” compared to 2013. It attributed the drop to delays in some TV series, movie cancellations, and other factors.]
The give-back announced today should at least temporarily ease Wall Street’s concerns about the lackluster performance of Yahoo’s core business. In conjunction with the spin off news, the company disclosed Q4 earnings that slightly beat expectations but also showed a decline in display ads — something that has now happened in eight of the last nine quarters.
Yahoo reported net income of $166.3 million, down 52.2% vs the period in 2013, on revenues of $1.25 billion, -1%. The top line beat the $1.19 billion that analysts expected. Earnings at 30 cents a share, not including one-time adjustments, topped the Street’s predictions by a penny.
Revenues from display ads, not including transaction costs, fell 5% to $464 million. Although Yahoo sold 17% more display ads, the price for each of them fell 20%.The search business, also excluding transaction costs, was flat at $462 million.