Yahoo! Inc. (YHOO) CEO Faces Critical Decision Related to Alibaba IPO

Marissa Mayer, the CEO of Yahoo! Inc. (NASDAQ:YHOO) is poised to face a critical decision related to the initial public offering of Alibaba Group Holdings Limited as the search company plans to sell 208 million shares or 40% of its remaining stake in the Chinese e-commerce giant.

In 2005, Yahoo! Inc. (NASDAQ:YHOO) invested $1 billion for a 40% stake in Alibaba Group. Alibaba Group bought back a portion of own shares held by Yahoo for $7.1 billion in cash and stock, and paid additional $550 million as part of its revised technology and patent  licensing agreement in 2012.

After the deal, the search company still owns 23% stake or 523.6 million shares of Alibaba Group, which is estimated to be worth approximately $26.2 billion.

Yahoo Inc. (NASDAQ:YHOO) could raise approximately $10 billion from selling its stake in Alibaba Group, which is expected to increase its accumulated cash by more than two-fold. Market observers opined that the sale is a major boon that could put more pressure for Mayer to improve the profitability of the search company.

Mayer implemented various initiatives to turnaround the company, but unable to produce significant profit or revenue growth.  This time, she has enough power to make a strategic decision to help the company increase its competitiveness against its rivals and become more profitable.

Many suggest that Mayer has the option to return cash to shareholders through stock buyback, dividend payment, or expand the products and services of Yahoo! Inc. (NASDAQ:YHOO) by acquiring companies such as AOL, Inc. (NYSE:AOL).

BGC Partners analyst Collin Gillis opined, “It gives her firepower to go buy companies. What she does with the cash will define how effective of a manager she is.” He added,” With much of the Alibaba support going away, “it’s time to rev up revenue growth. They will need to move the needle now.”

Mayer acknowledged that the Alibaba IPO is very important for the shareholders of Yahoo! Inc (NASDAQ:YHOO) during a conference hosted by Tech Crunch in New York on Wednesday. According to her, “We know this is of critical importance to our investors—how any proceeds are handled. We intend to be good stewards of the capital. We have been good stewards of the capital to date. ”

During the conference, Mayer indicated her intention to handle the incoming cash similar to what she did with the $7.6 billion proceeds from selling a portion of its stake in the Chinese e-commerce giant two years ago—majority were use for stock buyback and allocated $1.3 billion for acquisitions.

Alibaba Group officially submitted its U.S. IPO registration with the Securities and Exchange Commission (SEC) yesterday. The Chinese e-commerce giant aims to raise $1 billion from the offering, but analysts projected that it will be able to raise as much as $20 billion making it the largest IPO in the history of the technology industry.