Is Yahoo More Than Alibaba?

| About: Yahoo! Inc. (YHOO)


Despite 38 acquisitions under Marissa Mayer, Yahoo has shown no organic growth.

Analysts remain hopeful, because they believe Alibaba is worth more than many think.

An earnings fail could put this on your short list.

Yahoo (NASDAQ:YHOO) chose the day before the July 4 holiday to kill a host of products, including one very recent buy, Xobni.

Jay Rossiter, senior vice president of cloud platform services, delivered the news in a blog post, saying the company was "furthering our focus" on search, communications, digital magazines and video - powered by Flickr and Tumblr.

He said "Xobni-like" features would be incorporated into Yahoo Mail. Xobni CEO, Jeff Bonforte is now a senior vice president at Yahoo, responsible for mail and other communication products, like groups, calendar, messenger and contacts.

Eight products are being killed, said Rossiter, including the Yahoo Contributor Network, People Search, and Yahoo Shine, with some of their features, like Xobni, being absorbed into other products.

Early media reports were that Yahoo paid upwards of $70 million for Xobni, although those were eventually ratcheted down. AllThingsD reported after the deal that the final price, $30-40 million, was in line with venture capitalists' investments of $40 million in the company.

Wikipedia has estimated the price at $40 million. Xobni's own blog post on the deal did not mention a price. Yahoo also did not disclose what it paid.

Under Marissa Mayer, Yahoo has been on an acquisition spree. Since she became CEO in July 2012, Yahoo has bought 38 different companies headlined by the $1.1 billion Tumblr buy in May 2013.

Rossiter's post may indicate that the big buying days are past.

While many analysts continue to pound the table for Yahoo, this is based largely on the upcoming IPO of Alibaba, the Chinese e-commerce site in which Yahoo still holds a 22.6% stake.

Yahoo shares, however, are down 11% so far this year. I held 200 shares of Yahoo until April, selling at a price of $36, a profit of over $5,000, or $27/share.

Gene Munster, managing director and senior research analyst at Piper Jaffray, has raised his Yahoo price target to $43, based on the Alibaba stake. Yahoo opened for trade today at about $36/share.

Alibaba filed to go public in May, and since then, estimates of its value have been on an upward climb, with Munster speculating it could be worth as much as $211 billion.

That would make Yahoo's stake worth over $50 billion. Its current market cap is slightly more than $36 billion.

Some analysts remain high on Yahoo's potential organic growth, with one saying Marissa Mayer has the chance to be "tech's top CEO," based on its partnership with Live Nation and efforts to sell music.

Yahoo's future as a stand-alone company seems increasingly tied to media, both digital magazines and video. Yahoo now has a substantial stake in the New York Times headquarters building. If the company is a media star and wants to stand out from its tech brethren, one smart move would be to switch the corporate headquarters to New York City, to the Times building. Another way to improve results, in the near term, would be to switch its legal domicile to a low-tax jurisdiction like Ireland.

Yahoo's next earnings release, expected July 15, is a very important one. Of 33 analysts now following the stock, the average earnings estimate is 38 cents per share. For the March quarter, Yahoo reported net income of 30 cents per share.

The stock hasn't responded to the Alibaba rumors, in part because of a lack of organic growth. March revenue of $1.13 billion was little changed from the previous March's $1.14 billion.

In contrast, Google's (NASDAQ:GOOG) year-over-year revenue was up 19% for the March quarter, starting from a base of almost $13 billion, and Facebook's (NASDAQ:FB) revenue was up 71% year-over-year, from a base of $1.46 billion.

If Yahoo can't generate organic growth from all its acquisitions, then the only reason to buy it becomes a speculation on the value of Alibaba. I will be looking at the July 15 release very closely, and if they're disappointing, it could be followed by a call to sell Yahoo shares after the Alibaba IPO.

Disclosure: The author is long GOOG, GOOGL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.