Yahoo spins off Alibaba holdings as sales sputter

The Internet giant continues to struggle but has a plan to skirt a tax bill of billions of dollars.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
3 min read

Yahoo hopes to convince investors its turnaround plan is working. Richard Nieva/CNET

CEO Marissa Mayer's attempt to turn around Yahoo continues to stumble, but investors were happy about one thing: The Internet giant has a plan to avoid a giant tax bill related to its investment in e-commerce giant Alibaba.

The company on Tuesday said it is spinning off its remaining stake in Alibaba as an independent company called SpinCo. The move will help Yahoo avoid billions of dollars in taxes it would otherwise incur by selling its shares. Alibaba, which is China's largest e-commerce company, held its initial public offering in September. Yahoo currently holds a 15 percent stake in Alibaba, worth nearly $40 billion. The spin off is expected to close in the fourth quarter of this year.

"It makes us really happy to be able to deliver this plan today," Mayer said during a conference call Tuesday to discuss Yahoo's earnings for the fourth quarter of 2014.

Yahoo's shares climbed more than 7 percent, to $51.63, in after-hours trading.

The spin off could calm shareholders, including activist investor Starboard, which have criticized Mayer's lack of progress returning the Internet pioneer to growth. The move may buy Mayer more time. Questions still remain about Yahoo's future, however. The company's revenue fell short of analysts' estimates, indicating Mayer still hasn't managed to rejuvenate Yahoo's once-mighty advertising business and create compelling new products.

Pressure is mounting for Yahoo to revitalize its flagging advertising business and compete more effectively against rivals Google and Facebook. Nearly three years into her tenure as CEO, Mayer still hasn't hit on an answer to turn Yahoo's business around. The company said display advertising, a key financial metric, fell 5 percent from last year. In 2014, Yahoo dropped below Microsoft to become No. 4 in the global digital-advertising market, with 2.3 percent market share. Google and Facebook lead the pack, according to the research firm eMarketer.

Fourth-quarter sales, excluding traffic acquisition costs, were $1.18 billion and profit, minus some costs, was 30 cents a share. Analysts had estimated $1.19 billion in revenue and earnings of 29 cents per share.

Yahoo keeps trying

One bright spot for the company was mobile performance. Yahoo said it made $254 million in revenue from mobile ads, up 23 percent from the previous quarter, when the company first started reporting the figure. Mayer said the strategy before she took over the company in 2012 was "confused."

Yahoo has made several recent moves to jump-start its advertising. The company in August bought Flurry, a mobile-analytics platform. Earlier this month Yahoo reportedly restructured its ad team to put Prashant Fuloria, Flurry's chief product officer, at the group's helm. In October, Yahoo tapped former Amazon sales executive Lisa Utzschneider to head its Americas sales organization. And in November Yahoo acquired Brightroll for $640 million -- Mayer's second-largest acquisition to date, after her $1.1 billion purchase of blogging platform Tumblr in 2013. With Brightroll, Yahoo's customers can more easily buy video ads.

Mayer has bought more than 40 companies since becoming CEO in July 2012. Many investors question the Tumblr acquisition, unconvinced of the value Yahoo gains from the blogging site. The company last week announced a new initiative called Creatrs, which pairs artists and brands on Tumblr to create online advertisements. On Tuesday, the company said Tumblr's audience -- which includes both blog posters and readers -- rose to 460 million, up 9 percent from the quarter before.

Yahoo made other big bets during the quarter as well. The company in November announced a major partnership with Mozilla, maker of the popular Firefox browser, to become the default search engine in Firefox. The move helped Yahoo nab almost 2 percentage points of the market share for search in December.

Mayer said search would be a major area of growth for the company. "We intend to keep it that way," she said. "This is a significant opportunity."