Yahoo Falls After Alibaba Posts Slower Revenue Growth

Yahoo Inc. (YHOO), whose valuation is partially pinned on its stake in Alibaba Group Holding Ltd., declined after China’s largest e-commerce company reported slower quarterly revenue growth.

The shares of Yahoo, which owns 23 percent of Alibaba, dropped 5.8 percent to $34.81 at the close in New York. Alibaba, which has filed to go public, said today that sales climbed 39 percent to 12 billion yuan ($1.9 billion) in the quarter ended March 31, down from 62 percent in the prior period.

Yahoo Chief Executive Officer Marissa Mayer, who has been working on a turnaround since she arrived in 2012, has benefited from the Web portal’s stake in Alibaba amid growing interest in an initial public offering. The Chinese Web retailer’s sales growth has slowed before, when revenue grew 47 percent in the September quarter, compared with 59 percent in the prior period. Revenue growth is bound to slow as Alibaba expands, said Ben Schachter, an analyst at Macquarie Securities USA Inc. in New York.

Related: Alibaba Sales Growth Slowdown Spooks Yahoo Shareholders

“Revenue slowed more than people thought,” Schachter said. “Clearly Yahoo’s valuation is almost entirely driven at the moment by what’s happening with Alibaba.” He has a buy rating on the stock.

Shares of the Sunnyvale, California-based Web portal had their biggest decline since May 7, after Alibaba filed for an IPO in the U.S.

Sara Gorman, a spokeswoman for Yahoo, didn’t respond to an e-mail seeking comment.

IPO Windfall

Alibaba, the leading e-commerce company in the world’s largest Internet market, has been valued at $168 billion, according to analyst estimates. The IPO could be the largest ever in U.S. history.

Yahoo is selling 208 million shares, or about 40 percent of its Alibaba stake, in the Chinese Internet company’s market debut, and could generate in excess of $10 billion in the process. That windfall could be used for large acquisitions to drive revenue and traffic growth at Yahoo.

Yahoo needs to find fresh ways to drive expansion. While Alibaba’s growth may be slowing, it’s still much more robust than Yahoo’s pace. The company’s first-quarter sales, excluding revenue passed onto partner sites, rose less than 2 percent to $1.09 billion.

Mayer has said she’s focused on areas such as mobile and video with her turnaround.

Yang’s Role

Alibaba also named the 27 members of its partnership, key to its unique corporate governance structure, which has the ability to nominate a majority of the company’s board. Investors have been awaiting these additional details as they weigh whether or not to buy shares in the IPO.

The company also revealed that Jerry Yang, co-founder of Yahoo, will step in as an independent director at Alibaba. Yahoo’s development chief Jacqueline Reses, who had been an Alibaba director since December 2012, will resign from the Chinese company’s board. Yang, who forged the deal to invest in Alibaba almost a decade ago, stepped down from Yahoo’s board in 2012.

“Yang has been asked to serve as an independent director because of his track record as a leading innovator, his knowledge and experience in the Internet industry, his unique experience as a founder and senior business executive, and his deep knowledge and understanding of Alibaba,” the filing said.

To contact the reporters on this story: Cecile Daurat in Wilmington at cdaurat@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Cecile Daurat at cdaurat@bloomberg.net Reed Stevenson

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.