What Happens To Yahoo Stock After Alibaba IPO Party

Thinking Yahoo’s YHOO stake in Alibaba is going to turn the company around and be a huge windfall for shareholders? Consider some of these facts regarding the over-hyped Alibaba IPO.

First of all, Alibaba has struggled to get past all of the SEC regulations and restrictions for its IPO. Secondly, as the date of the IPO is debated the estimated pricing for the sale to the underwriters has dropped, lowering the estimated IPO value from 220 billion to now an estimated 160 billion. It may even come in lower, depending upon the interest level from the preferred clients who are the giant mutual funds.

In addition there are the regulations as well as filings required of every insider, whether that is a person or a corporation. Yahoo must file its intent to sell shares of Alibaba to the public. It must also take care not to dump millions of shares of stock all at once as this would cause the stock value of BABA to plummet. Whether there will be a huge quantity of unsold shares held by the underwriters on the day of the IPO as there was with Facebook FB, is a question that is not yet close to being answered. If the preferred clients do not buy BABA there will be a huge quantity of shares on the open market the day of the IPO. This could cause the new BABA stock to initially skyrocket in price as High Frequency Traders trigger massive quantities of buy orders in anticipation of the individual investor and trader buying into the hype of this IPO, and then selling as the smaller lot orders move into the market.

Yahoo will most likely have a bank or broker manage the sale of the shares of stock they have filed for insider sales with the SEC. Depending on the quantity of stock available to sell on the day of the BABA IPO, it may not be the best decision for Yahoo to sell all of its shares at once.

Meanwhile, Yahoo has reported lower revenues and earnings for the second quarter of 2014, and has offered guidance that projects continued declines for the remainder of the year. Sale of Alibaba stock is not revenue, but sale of an asset that is highly regulated. Corporations often own smaller firms both private and public, so this ownership is not out of the ordinary. Corporations must pay capital gains and the sale reduces assets on their Balance Sheet, but is not a revenue generator in the context of regular sales.

Yahoo has stated it intends to buy back more shares of its stock. It has had one of the most aggressive buyback strategies in the past couple of years, which was the primary reason for the increased stock value. With declining revenues and earnings its chart has shown consistent Dark Pool quiet distribution, with the Percent Shares Held Institutions PSHI fundamental indicator is showing a steady decline in institutional holdings starting a year ago.

Clearly the wisest and largest institutions are not keenly interested in YHOO, nor do they believe that the BABA IPO is going to turn YHOO around. That means the current run is purely speculative and controlled predominantly by High Frequency Traders. Currently YHOO is at prior yearly high resistance, which is a fundamental and technical resistance level. Usually when a company has ownership in another firm, this kind of pre IPO speculative gains are seen. However historically these runs are short lived and profit taking and selling, drive the stock down after the IPO release.

The hardest aspect of investing is speculative runs. Any upward price action does not means that the stock is a good investment, it is necessary to differentiate between speculation and true Dark Pool quiet accumulation.

Trade wisely,

Martha Stokes CMT

Sources: SEC, Yahoo website