Yahoo! Inc. (YHOO) to Return Cash from Alibaba IPO to Shareholders

Yahoo! Inc. (NASDAQ:YHOO) plans to return at least 50% of the cash it will obtain from the upcoming initial public offering (IPO) of Alibaba Group Holding Limited to shareholders. The move will provides relief to shareholders as CEO Marissa Mayer struggles to improve the sales performance of the company.

“We are committed to return at least half of the after-tax IPO proceeds to shareholders, in line with our overarching commitment to maximizing shareholder value through prudent capital allocation,” said Ken Goldman, chief financial officer of Yahoo! Inc. (NASDAQ:YHOO).

In addition, Yahoo! Inc. (NASDAQ:YHOO) will also be able to retain a bigger portion of its stake in Alibaba after the Chinese e-commerce giant allowed the California-based search company to reduce the number of shares it intends to sell during the IPO.

Goldman said the company will sell 140 million of its Alibaba shares, down from the previously agreed 208 million.  The decision provides an opportunity for Yahoo to gain more from its investment in the Chinese e-commerce giant as it continues to grow while preparing for its IPO. Yahoo owns 23% stake in Alibaba.

Last month, Alibaba selected to trade at the New York Stock Exchange (NYSE) under the ticker symbol “BABA.” The e-commerce giant scheduled its debut on August 8.

Brian Wieser, an analyst at Pivotal Research Group commented, “Alibaba steals the show again. It’s the dominant moving piece in Yahoo’s valuation.” Wieser recommended a Hold rating for the shares of Yahoo! Inc. (NASDAQ:YHOO).

Yahoo 2Q earnings miss estimates

The plans of Yahoo! Inc. (NASDAQ:YHOO) regarding the proceeds from selling its stake in Alibaba overshadowed its disappointing earnings results for the second quarter. The search company reported earnings of $0.37 per share on $1.04 billion in revenue. Wall Street analysts expected the company to deliver earnings of $0.38 per share on $1.09 billion in revenue.

The search company reported that its earnings from its stakes in Alibaba and Yahoo Japan Corporation (TYO:4689) were $256 million during the June quarter.

Yahoo Inc. (NASDAQ:YHOO) reported a 7% decline in adjusted display-ad revenue due to higher ad volumes and lower prices per ad.

Sameet Sinha, an analyst at B. Riley & Co. opined, “The big headwind is competition The Facebooks and Googles are getting that much further ahead.”