Yahoo CEO Marissa Mayer delivers her keynote address at the annual Consumer Electronics Show (CES) in Las Vegas, Nevada in this file photo taken January 7, 2014. Yahoo Inc unveiled a plan for a tax-free spin-off of its 15 percent stake in China's Alibaba Group Holding Ltd, a first step in a highly-anticipated process to unwind the holding, which is valued at roughly $40 billion.Robert Galbraith/Reuters
By spinning off its stake in Alibaba Group Holding Ltd., Yahoo Inc. will remove a key reason for investors to hold the stock – increasing pressure on chief executive Marissa Mayer to revive growth from other assets.
As Yahoo announced a tax-free plan to distribute its $40-billion (U.S.) holding in the Chinese e-commerce company as a separate public firm, the Web portal issued a revenue forecast that fell short of estimates, underscoring the challenge Ms. Mayer faces in reviving sales, which have been stagnant for five years. The company's market value of $45.4-billion on Tuesday was less than the combined value of the stake in Alibaba and Yahoo's $8-billion holding in Yahoo Japan Corp.
By exiting the Alibaba stake, Ms. Mayer will no longer have the cover provided by owning part of China's biggest online marketplace. While Ms. Mayer has made acquisitions, restructured the company and taken steps to boost the appeal of Yahoo's products, she'll now have to start delivering tangible results after more than two years as CEO.
"Now the core business is in focus," said Sameet Sinha, an analyst at B. Riley & Co. "She was distracted with all this deal-making. So you did that, good job. Let's move on."
Ms. Mayer will need to extract more revenue from new businesses, including mobile and video, while making sure that Yahoo benefits from demand for search services, Mr. Sinha and other analysts have said.
"You'll probably have another couple of quarters before people really start getting snarky again about where the core business is going," Mr. Sinha said.
Ms. Mayer decided on the spinoff after Starboard Value LP and other investors pushed her to return cash to shareholders, find ways to cut taxes and avoid major acquisitions.
"For better or worse, the resolution of the Alibaba stake returns investor attention to operations," said Paul Sweeney, a Bloomberg Intelligence analyst. "This quarter's results show there is much more work for Marissa and her team to do."
Yahoo will be a fraction of its size following the spinoff. With the company currently trading at a discount to the value of its Asian assets, investors aren't giving Yahoo credit for its about $7-billion of net cash and get to own the core U.S. business for free. The Internet advertising and search business that would be left after the disposal of its Asian assets should be valued at about $5-billion to $8-billion, according to analysts' estimates compiled by Bloomberg.