Yahoo, more than any other investor, should have benefitted from the public market debut last week of Alibaba, the Chinese e-commerce giant.
The company sold Alibaba shares worth $6 billion after taxes, and its remaining stake is valued at $36 billion. Yet Yahoo?s shares have tumbled more than 8% since then, highlighting the peculiarly difficult crossroad that now confronts Yahoo and its chief executive, Marissa Mayer.
Yahoo could use the proceeds from the Alibaba share sale to go on an acquisition spree to help reinvent itself and regain relevance.
But many investors and analysts have been underwhelmed by previous takeover efforts, including the $1.1 billion purchase of the blog network Tumblr, which have yielded few obvious gains. Now restive shareholders are clamouring to receive the bulk of the cash from the Alibaba stake sale, potentially limiting Mayer?s ability to pursue acquisitions.
Sarah Meron, a spokeswoman for Yahoo, declined to comment on the company?s acquisition strategy or its long-term plans for its remaining Alibaba stock, which it has promised to hold for at least a year.
The question of Yahoo?s fate will become only more acute over the next year or so. Before Alibaba went public, the only way most shareholders could obtain any sort of financial exposure to Alibaba was to invest in Yahoo because of its stake.
Once the public was able to buy Alibaba shares directly, however, the need for Yahoo as a proxy disappeared.
Still, the remaining Alibaba stake is by far the single most valuable asset that Mayer oversees. The second-most valuable one is the company?s 35% stake in its Japanese affiliate, Yahoo Japan, which is valued at about $8 billion.
Yahoo?s market value was about $39 billion as of the close of the market on Thursday. Subtract the expected taxes that selling the Asian companies would generate, and what remains is worth perhaps $13 billion.
And what remains, analysts say, is challenged. The company has steadily lost ground in mainstay businesses like selling display and search advertisements as competitors like Facebook, Twitter and automated ad buying systems have risen. Its email offering retains nearly 300 million users but has ceded its crown to Google?s Gmail.
One deal maker, a Silicon Valley adviser who was not authorised to speak publicly, put it succinctly: ?The company has to be fundamentally rewired.?
The easiest way to do that would be through more acquisitions, using the money from the Alibaba share sale. Management has been quick and consistent in proclaiming that at least half of the proceeds will be paid out to investors, probably in the form of a stock buyback.
Beyond that, executives have been quiet about what they have in store for their cash pile. The most obvious use would be acquisitions, and bankers have been preparing countless pitches for potential targets, including the business review site Yelp and the hugely popular social network Pinterest.
?The type of advertising that Yahoo relies on is fundamentally challenged,? said Jon Miller, a former chief executive of AOL who now invests in technology and media companies. ?But buying something like Pinterest could give them at shot at the next turn of the wheel. They need to make some bet on the future of monetisation.?