Investors welcomed Yahoo Incs plans to keep a larger than expected stake in Chinese e-commerce company Alibaba Group Holding Ltd, ignoring the slowing growth of its core online advertising business.
The California-based internet company, said it believed in the “long-term potential and value of Alibaba”. Yahoo rose around 1% to $33.70 in after-hours trading as it said it would sell fewer shares than originally agreed from its 24% stake when Alibaba goes public.
According to Ben Schachter, an analyst with Macquarie Research, Yahoo is willing to wait till after the IPO of Alibaba in order to maximize gains.
“The idea is you dont want to have to sell at the IPO price, you want to sell later to potentially get the appreciation going up,” he said.
Yahoos main business of selling online display and search advertising remained soft in the third quarter amid competition from Facebook Inc and Google Inc. Prices for Yahoos display ads declined 7% on a yearly basis, while the number of display ads sold increased roughly 1%. Revenue from search advertising, which accounts for 39% of the total revenue, increased 3% year-over-year, excluding certain costs.
Yahoos CEO Marissa Mayer emphasized on improvements in user traffic to the companys various Web destinations and said the increasing usage would pay back in Yahoos revenue growth in the coming year. Mayer pointed to a rise of 20% in the number of monthly active users to 800 million on Yahoo in the past 15 months since she took over as CEO.
She said that users of Yahoos mobile products increased 15% from the previous quarter to 390 million, while traffic to a renovated version of Yahoos sports website had doubled.
Alibaba’s net income soared 145% to $717 million in the third quarter, compared with the same period the year before, while revenue rose 61% to $1.74 billion. However, the growth rate decreased slightly from the second quarter.
Relationship between the two companies has not always been smooth but Joe Tsai, Alibaba’s executive vice-chairman, said under the new leadership of Marissa Mayer, Yahoo chief executive, it had focused on building good relations with the Chinese company.
“We look forward to working with Yahoo as a supportive shareholder and partner to expand our business for future growth,” he said.
The current consensus among 34 polled by CNN Money investment analysts is to hold stock in Yahoo! Inc. This rating has held steady since October, when it was unchanged from a hold rating. Yahoo share price rose more than 67% on a year-to-date basis.