What The Alibaba Group Holding Ltd (BABA) Spin-Off Means For Yahoo! Inc. (YHOO) Stock

alibabayahooKyle Anderson:  Yahoo! Inc. (NASDAQ:YHOO) stock has climbed 16% in October. Now investors are awaiting the Q3 earnings report on Tuesday, Oct. 20, as a lackluster report could put an end to that run.

Yahoo stock

Investors will focus on earnings per share and revenue, but the most important part of the Yahoo Inc. (Nasdaq: YHOO) earnings report will be an update on the Alibaba stock spin-off.

On Sept. 29, Yahoo officials announced that they will be moving forward with spinning off the company’s 384 million shares of Alibaba Group Holding Ltd (NYSE:BABA). Yahoo has previously said it plans to spin off those shares through a tax-free deal during Q4.

Wall Street pundits had some questions about the eligibility of the deal’s tax-free status. In an ambiguous letter, the IRS wrote in September that it would issue neither a favorable nor an unfavorable ruling on the deal’s tax-free status.

Still, Yahoo’s board believes the deal should move forward without any issue from the IRS.

You can see how important the Alibaba stake is to Yahoo when you compare it to Yahoo’s total market cap of $31.5 billion. At today’s opening price of $71.80, those Alibaba shares are worth more than $27.5 billion.

That means much of Yahoo’s business is based entirely on its stake in Alibaba.

MKM Partners’ Rob Sanderson detailed this in a letter to investors last month:

“We think Yahoo’s core business should support a valuation of 4 times earnings before interest, taxes, depreciation and amortization (Ebitda), which implies $4 per share on our current estimates (relatively in-line with consensus).”

According to Sanderson’s letter, Yahoo and CEO Marissa Mayer will switch their focus to the company’s mobile presence, native advertising revenue, search business, and other core businesses once the spin-off is complete.

But readjusting the company’s focus is just one reason Yahoo stock investors want the company to move forward with the Alibaba spin-off…

What the Alibaba Spin-Off Means for Yahoo Stock

More than anything, those invested in Yahoo stock have been waiting months to have cash returned to them from the Alibaba spin-off.

When the spin-off was first announced, company officials said the proceeds would be used for a major stock buyback program.

While shareholders will receive billions from the spin-off, they’re hoping the deal takes place sooner rather than later. Over the last year, shareholders have watched the value of that Alibaba stake decline steadily.

(…)Click here to continue reading the original ETFDailyNews.com article: What The Alibaba Group Holding Ltd (BABA) Spin-Off Means For Yahoo! Inc. (YHOO) Stock
You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)