Yahoo's $5 Billion Buyback Plan
Shares of Yahoo! (NASDAQ: YHOO) were trading higher by more than three percent on Wednesday morning following the news announcement of the company's share buyback plan.
The company announced on Tuesday that it will expand its share buyback authorization to $5 billion. Last quarter, the company bought back $1.7 billion of shares, which all but depleted any remaining authorization funds.
Yahoo! announced that it will be offering a $1 billion convert that will ultimately add $800 million of cash to the balance sheet, which currently stands at around $3.2 billion. Taking on a convert is a wise move, given a degree of uncertainty if interest rates will remain low in the near term.
“We think this is a prudent move by management, as the company works to turn around its core and return to revenue growth,” Robert Peck, analyst at SunTrust Robinson Humphrey noted in a analyst report. Peck also believes the company could be on the shopping block for a major acquisition. Companies such as Pinterest, Buzzfeed, Snapchat and Business Insider are potential takeover targets.
In addition to the share buyback, investors are also anticipating a potential Alibaba IPO. Yahoo! holds a 14.5 percent stake in the Chinese based e-commerce giant. Peck noted that within two years, Alibaba could be valued as high as $200 billion, valuing Yahoo's ownership at around $29 billion.
Despite Yahoo's share buyback program, and potential benefits from an Alibaba IPO, Peck “remains cautious on the core turnaround until more traction is shown.” The firm maintained its Neutral rating with a positive bias.
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