Yahoo Investment In Question On Alibaba Boom

4/16/14 10:22AM EST

Yahoo Investment In Question On Alibaba Boom Yahoo Investment In Question On Alibaba Boom

Image via Flickr/ Wonderlane

Yahoo shares were spiraling upward before the market opened this morning on the back of the release of the company’s first quarter earnings report. Most of the positives from the report appeared to come from the better than expected performance of Alibaba, the company’s Chinese e-commerce business. That segment is set to go public in the coming months, leaving shareholders with several questions for Marissa Mayer.

Before the market opened on Wednesday morning, shares in Yahoo! Inc. (NASDAQ:YHOO) were up by almost 8 percent. The shares peaked yesterday evening with a gain of more than 9 percent. Investors are clearly happy with the performance of the company, but the coming sell off of Alibaba brings with it as many problems as it does solutions. Some of the resultant cash will be handed back to investors, but Yahoo will have to decide what to do with the rest of the proceeds.

Yahoo Investment Brings Disappointment

Yahoo! Inc. (NASDAQ:YHOO) does not have the best track record and despite the slow turnaround of the company’s core business evidenced by yesterday’s report, the company is not exactly on top form, and it hasn’t been for many years. Google is dominating the advertising business, and the market for services appears to be moving faster than anyone can keep up with.

Tumblr was purchased for $1 billion, a number that seems almost fair in light of recent moves by Facebook Inc (NASDAQ:FB), but it has yet to return anything of value to Yahoo. The company is still talking up investments in mobile and rich media, but there has been almost no resultant earnings. Yahoo is not able to predict the future of the tech industry, and there’s no reason investors should expect it to.

Yahoo Will Not Predict The Future Of Tech

Messaging applications are at the forefront of the mobile  business right now, but there is no guarantee that things will stay that way. The social network boom came and went without anybody earning a real profit. Yahoo has not yet moved into the messaging space in any remarkable way, and the company seems unlikely to pick the next trend out of the air.

Companies like Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) are experienced at forming the way people use their devices, but neither of those companies accounted for the rise in social networks, or the rise in messaging applications. The tech world is not easy to predict, and Yahoo! Inc. (NASDAQ:YHOO) has shown no ability to either form or pre-empt the way people use their devices.

A talented CEO, in Marissa Mayer, may be able to direct the company toward clever acquisitions and worthwhile investments, but the company’s recent history doesn’t support that view to any substantial extent. Yahoo! Inc. (NASDAQ:YHOO) has a core business that is wilting, and billions of dollars on the way into its accounts. A P/E of 30 implies that the company knows how to spend that cash, but there’s little evidence to support that idea.

Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.


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