Yahoo Stock Dips On Alibaba Slowdown Fears

  • Yahoo stock dipped following the release of Alibaba latest quarterly financials.
  • Alibaba’s upcoming IPO will present investors seeking exposure to e-commerce an attractive investment opportunity over Amazon and eBay.
  • The dip in Yahoo stock price should be used to accumulate stock and hold positions in the lead up to the much anticipated Alibaba IPO.

Yahoo stock attractive post the recent dip

Yahoo (NASDAQ:YHOO) stock slumped by 5.8% in trade yesterday, following the filing of Alibaba’s F-1/amended statement with the SEC. As covered by us in our earlier posts, the stock has been trading as a proxy for its Asian investments for a good part of the last year. The latest fall in stock price confirmed our opinion as the stock responded to slowdown fears at the Alibaba group.

Yahoo’s Asian investments driving stock price

Yahoo Inc. has two major investments in Asia; a 35% stake in Yahoo Japan and a 22.6% stake in Chinese e-commerce and internet giant Alibaba. Yahoo’s stock rally over the last year and a half (77%) has been driven largely by the performance of its Asian investments, rather than the performance of its core business, which is on course for a turnaround.

The fact that Yahoo stock price movement has largely remained cut-off from its core business has shifted the focus of analysts to its Asian investments to gauge the value of the stock. Among the two Asian investments, understanding the value of the 35% stake in Yahoo Japan has been simple and straightforward as the company trades on the tokyo stock exchange.

It is Yahoo’s stake in Alibaba which has been a blackbox of sorts fuelling the volatility in Yahoo’s stock price as and when new information regarding the Chinese e-commerce giant has come out into the public. The company yesterday updated its pre IPO F-1 filing with its results for the March 2014 ending quarter, which was followed by a big dip in Yahoo’s stock. So what exactly did the latest numbers imply?

Alibaba: Slowdown in topline growth?

Alibaba reported annual revenues of $8.4 billion for the year ending March 2014, implying over 50% Y/Y growth with a net profit margin of 44%, numbers which would have investors jumping in joy. However, Yahoo investors punished the stock, a clear indication of the reported growth being lower than investor expectations.

alibaba YoY revenue growth

Alibaba reported a topline growth of 38% in its latest quarterly results for the march 2014 ending quarter, which is the lowest Y/Y growth over the last 4 quarters. The company had reported a 62% growth in the December ending quarter, which had set investor expectations at a new high following the 47% Y/Y topline growth in the September 2013 ending quarter. However, in the hype and focus being trained on the topline growth, it is easy for investors to miss Alibaba’s ever improving margins. The company reported a net profit margin of 46%, which was the highest reported margin over the last 4 quarters. To put things in perspective, we compare the financial metrics of Alibaba against those of Amazon and eBay, two of the foremost e-commerce platforms of today.




LTM revenue growth




LTM Operating profit margin




LTM Free cash flow margin












*Alibaba P/E and P/S multiple calculated based on a market cap of $109 billion, the underwritten value of the IPO.

It is clear from the above table that Alibaba with its faster growth and superior margins will be an attractive investment option for investors looking for an exposure to the e-commerce industry. Therefore, we reiterate our earlier view on the value of Yahoo’s stake in Alibaba to be worth $21/share.

In conclusion, given the current market cap of Yahoo Japan, at 2.77 trillion Yen, we value Yahoo Inc.’s 35% stake at $9.41 per share. And considering our earlier conservative valuation  of Yahoo’s core business at $5.9/share, we arrive at Yahoo’s intrinsic value of $36.31/share, implying an upside of 4.3% over the June 16th closing price.

In conclusion, we reiterate our positive outlook on Yahoo stock and suggest accumulating and holding positions in Yahoo stock in the lead up to the upcoming Alibaba IPO.

To see the current stock price of Yahoo click here: (NASDAQ:YHOO).

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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