Yahoo's Alibaba stake takes heat off weak forecast

Wed Oct 16, 2013 12:24pm EDT
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By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Investors cheered Yahoo Inc's plans to keep a larger-than-expected stake in Chinese e-commerce giant Alibaba Group Holding Ltd, overlooking continuing softness in its core online advertising business.

Yahoo rose nearly 1 percent to $33.70 in afterhours trading as it said it would sell fewer shares than originally agreed from its 24 percent stake when Alibaba goes public.

That means Yahoo will reap more gains if Alibaba's stock surges after the IPO, said Ben Schachter, an analyst with Macquarie Research.

"The idea is you don't want to have to sell at the IPO price, you want to sell later to potentially get the appreciation going up," he said.

Yahoo's core business of selling online display and search advertising remained soft in the third quarter under fierce competition from Facebook Inc and Google Inc.

Prices for Yahoo's display ads declined 7 percent year-over-year, while the number of display ads sold increased roughly 1 percent.

Revenue from search advertising, which accounts for 39 percent of the total, was up 3 percent year-over-year, excluding certain costs.

Yahoo Chief Executive Marissa Mayer pointed to improvements in user traffic to the company's various Web destinations and said the increasing usage would start to show up in Yahoo's revenue growth in the coming year.   Continued...

The Yahoo logo is shown at the company's headquarters in Sunnyvale, California April 16, 2013. REUTERS/Robert Galbraith