Enormous Cash Influx For Yahoo Will Come In September

Sep. 3.14 | About: Yahoo! Inc. (YHOO)

Summary

YHOO will finally receive a long-awaited influx of cash through the upcoming initial public offering of Alibaba in September.

Yahoo! will sell 140 million shares in Alibaba in the upcoming IPO, or approximately 27% of its stake in the company and could raise ~$6-$7 billion in cash.

Investors have already cheered the news that these proceeds could be returned to shareholders.

The run-up to the Alibaba IPO is a strong buying opportunity for investors, looking towards the September boost.

Yahoo! To Receive Long-Awaited Cash Influx in September

Yahoo! Inc. (NASDAQ:YHOO) will finally receive a long-awaited influx of cash through the upcoming initial public offering of Alibaba (NYSE:BABA) in September, as the Chinese e-commerce giant appears poised to overcome the final regulatory hurdles in the way of its IPO.

Alibaba is expected to launch a two-week roadshow this week, during which the firm's representatives will meet with investors around the globe in the second week of September; the IPO's expected price range will also be announced that week. Alibaba will trade under the symbol BABA on the NYSE.

Yahoo! To Continue Benefiting From Alibaba Post-IPO

Yahoo! is the second-largest shareholder in Alibaba with a 23% stake in the firm, the largest shareholder being Japanese telecom firm Softbank Corp. Yahoo! will sell 140 million shares in Alibaba in the upcoming IPO, or approximately 27% of its stake in the company; Yahoo! had previously been required to sell 40% of its stake in the offering, but came to an agreement with Alibaba to reduce the shares offered. Though this will reduce the still-considerable quantity of cash that Yahoo! will take away from the offering, it will also grant Yahoo! the opportunity to benefit to a greater degree from Alibaba's future growth.

Big Value For YHOO Shareholders

Alibaba's value remains to be seen. The company estimated itself to be worth approximately $130 billion in mid-July, but some analysts place its value in excess of $200 billion.

The IPO may be worth upwards of $20 billion. If that were the case, Yahoo! could raise cash in the ballpark of $6 billion to $7 billion; in any case, Yahoo! will certainly raise billions of dollars in the IPO, which could potentially prove attractive to investors in the near term. Investor interest also piqued by Yahoo! CFO Ken Goldman's statement to the effect that at least half of the company's proceeds from Alibaba's offering will be returned to shareholders.

To date, Yahoo has not declared a cash dividend.

The cash infusion could prove to be a boon to Yahoo!, which has seen declining profits in the past year, largely due to the poor performance of its display advertisements, a major source of revenue; the average price of Yahoo! advertisements plunged 24% in the second quarter.

Advertisers have shown a greater interest in smaller, relatively inexpensive ads, targeted towards individuals, than in the banner ads that Yahoo! is best known for. Competitors Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) have been the beneficiaries.

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While YHOO shares have seen general strength in the run-up to the Alibaba IPO, now could be a key point at which to buy into the stock-anticipating the flood of cash and good news in early September.

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Disclosure: The author is long YHOO.

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.