Yahoo Inc. (YHOO) shares rose 7% in premarket trading Wednesday
after the Internet company's first-quarter report indicated
progress with its advertising business and eased concerns about
slowing growth at Alibaba, the e-commerce giant in which Yahoo owns
a 24% stake.
Yahoo said Alibaba's revenue jumped 66% in the December quarter,
the most recent quarter available, faster than the 51% increase
reported in the September period. The Alibaba results were highly
anticipated because the company is preparing for an initial public
offering in New York later this year.
"The salient point of Yahoo's [first-quarter] results was the
very strong December quarter results from Alibaba," Stifel Nicolaus
analyst Jordan E. Rohan said. "Alibaba's results paint a favorable
picture for a favorable IPO despite the recent period of weakness
in the internet sector."
Alibaba's IPO could value the Chinese company at $100 billion,
although Mr. Rohan said it could end up being more than twice that
number.
Meanwhile, California-based Yahoo reported its revenue, minus
commissions paid to partners for Web traffic, rose 1% in the first
quarter after four straight quarters without growth. In addition,
revenue from display ads, excluding the traffic costs, increased 2%
to $409 million.
"Our advertising technology teams have been experimenting with a
number of new and innovative ad formats," Yahoo Chief Executive
Marissa Mayer said on a conference call Tuesday, "and we've seen
some encouraging results."
Yahoo's growth, however small, is a positive mark for Ms. Mayer,
who has faced scrutiny over her inability to jump-start the
company's ad revenue. Since taking over as CEO nearly two years
ago, Ms. Mayer has updated popular sites like Flickr and Yahoo
Finance, created splashy new online magazines and slick mobile
apps, and acquired dozens of small startups to inject new talent
into the aging Internet giant.
"After making significant progress in addressing people,
products and traffic, management seems to now be making progress
towards growing revenues again," Cantor Fitzgerald analyst Youssef
Squali said. "While still anemic, growth in search and display
should continue to improve throughout 2014."
Yahoo shares early Wednesday were trading at $36.68, up from its
close Tuesday of $34.21 but below its January high of $41.72. Mr.
Squali said Yahoo's sum-of-the-parts valuation is $40. He figures
the company's stakes in Alibaba and Yahoo Japan are worth a total
of nearly $31 a share, while its operations and investments add
about $9.
"Prospects for an imminent Alibaba IPO and further [share
buybacks] should continue to support the stock," Mr. Squali
said.
Write to George Stahl at george.stahl@wsj.com
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