Does a Yahoo (YHOO) / Alibaba combination pose a threat to EBAY in China?

| About: Sina Corporation (SINA)

Forbes reported yesterday that Yahoo (ticker: YHOO) is negotiating to acquire a 35% stake in Alibaba for approximately $1 billion. S&P analyst Scott Kessler had the following reaction:

On Yahoo (ticker: YHOO)

....An unconfirmed report in indicates that Yahoo is in talks to acquire 35% of Alibaba for some $1 billion. Alibaba is a leading e-commerce company in China that owns payment service AliPay and about half of the consumer auction business Taobao. We think this potential deal would be quite complicated because of Softbank's stake in Taobao and Yahoo's joint venture with Sina Corp. (ticker: SINA). We think this constitutes a price/sales valuation that is pricey, but seems more reasonable given Alibaba's market position and notable interest in Chinese Internet properties.

On eBay (ticker: EBAY)

....Yahoo is in talks to acquire a minority stake in Chinese e-commerce company Alibaba, which owns about 50% of consumer auction business Taobao and all of payment service AliPay. We think this potential deal would be complicated due to Softbank's stake in Taobao and lpai, Yahoo's consumer-auction venture with Sina Corp. However, we think this deal, if completed, would constitute a substantial threat to eBay's China businesses. Taobao indicated it had greater first-quarter gross merchandise volume than eBay, and 1pai is the No. 3 player.

Forbes Analysis of Yahoo!-Alibaba Combination

....For Alibaba, a hookup with Yahoo! rather than eBay might make more sense because there is less overlap with its core online auction business. It would also bring Alibaba the chance to tap into Yahoo!’s search expertise.

....In Alibaba, Yahoo! would get access to one of the country’s best local Internet teams and obtain greater reach than ever into China. Given the high valuation Baidu (ticker: BIDU) earned from investors, Yahoo! may well be seen as getting a bargain, depending on the specifics of Alibaba’s finances.

Comment: For a look at latest results from Taobao and eBay Eachnet see

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Tagged: , Internet Software & Services, China
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