Analysts Say Yahoo Share Value Still Linked To Alibaba

Yahoo! Inc.'s YHOO share price will continue to be driven by its remaining stake in Alibaba Group Holding Ltd BABA, an analyst said Wednesday.

The company reaped a pre-tax windfall of $9.5 billion by cashing out 140 million of its Alibaba shares last month, but still owns a 16 percent stake currently worth about $35 million.

The analyst said that a 10 percent gain in the price of Alibaba stock should equal a 7 percent gain for Yahoo's shares.

"In the near-term, Alibaba's price may be the biggest driver of Yahoo stock," Bank of America's Justin Post said in a note, maintaining a Neutral rating but boosting Yahoo's target to $48, from $45.

Yahoo is trying to figure out how to shield that investment as much as possible from U.S. taxes. Yahoo Chief Executive Marrissa Ann Mayer told investors that its strategy will get spelled out in its January earnings report.

FBR's William Bird had expected a plan for the assets next summer, and upgraded Yahoo Wednesday to Outperform, citing the faster timetable. Bird also raised his target to $50 from $40 a share.

Bird said options might include "a spin-split, a cash-rich split, and/or raising debt" using the Alibaba investment as collateral.

Yahoo's recent revenue growth of 1 percent represented only the second increase in the past six quarters, and as such met with approval.

"New initiatives are showing traction," Bird said, citing social, mobile, video and native advertising.

During Wednesday's afternoon session, Yahoo gained nearly 5 percent to $42.16 per share. Alibaba gained 1.3 percent to $92.05 per share.