How Yahoo May Spend Its $8 Billion Alibaba IPO Windfall
The windfall, related to contractual obligations Yahoo has with Alibaba to sell half of its 24 percent stake once it goes public, could be worth $8 billion or more, according to some estimates. That would be in addition to its existing cash stash of $3.5 billion. While $11.5 billion sounds staggering, it's nothing compared to Apple's $160 billion.
Nevertheless, Yahoo has been under pressure to reposition itself to make money, and quickly, since Chief Executive Marissa Mayer took control in 2012. With growth in mind, Yahoo has made several high-profile acquisitions aimed at building the Sunnyvale, California-based tech company's audience reach and depth of talent. (Its $1 billion acquisition of photo-blogging site Tumblr last May is but one example.)
Currently, Yahoo has three options, experts say. It can buy back shares to prop up its own stock price, as it did late last year in a $5 billion repurchase. It can issue a dividend to shareholders, a course of action it's never embarked upon. Or it can acquire companies that would shore up weaknesses in its lines of business.
"I am sure Marissa Mayer will find something to buy," says Brett Harriss, an analyst for Gabelli & Co., the brokerage company.
Primarily, Yahoo needs to boost lines of business where it's already strong, or where it's indicated it would like to go. That means advertising and video content are likely targets.
"Yahoo is looking at how to increase reach or audience, and monetization or yield on monetization," says Michael Yang, managing director of Comcast Ventures, in San Francisco. Yang worked at Yahoo as vice president and general manager of media properties.
A key area where Yahoo could seek an acquisition is in content personalization--that is, a complicated way to say companies that help serve up relevant content to consumers. One example is RichRelevance, which displays advertisements based on consumers' shopping preferences, Yang says.
But Yahoo also needs to improve its email offering to better compete with Google, primarily. So it could also look for startups it could easily integrate into its existing platform that would help change the look and feel of its inbox.
With its hire of Katie Couric and others, Yahoo has made a significant push into news, financial information, and other content. So, it could be interested in acquiring popular news startups such as Buzzfeed, Nowthis News, and Recode.
Similarly Kevin Spain, a partner at Emergence Capital Partners, says social networks Pinterest and Yelp might be possible acquisition targets.
"If Yahoo wants to continue to be a destination for a large percentage of Internet users, they need to invest where those users are going today," Spain says. "If I were them, I would be looking at buying established properties that have large and growing user bases."
Two other areas that Yang says Yahoo would be interested in amping up include video and search. For example, it could look to make a multi-channel network purchase such as Disney did with its $500 million acquisition of Maker Studios. It currently uses Microsoft to monetize its search function, but Yang says Mayer is likely to unwind that contract and shift to Google, which could be a boon to startups operating in Google's search sphere.
Yet another possibility? Yahoo might build an ad network like Facebook's Audience Network, which will allow it to sell ads across platforms, including mobile. It would also allow Yahoo to pull more money out of its own pages and the pages of other publishers that rely on Yahoo. In that case, some possible acquistions or partnerships might be the newly public Rubicon, as well as AppNexus, Yang says.
In that regard, advertising plays that help develop content might also be important. Colin Gillis, an analyst at BGC Partners, says MediaOcean, an open platform that connects advertising media buyers and sellers, might be a good bet. But he's not discounting a purchase of Internet stalwart AOL, whose stock price is low and whose valuation, currently less than $3 billion, might put it in a sweet spot for an acquisition.
"The question that Yahoo will ask is, 'What property can I buy that Facebook and Google don't want, that is not a cool kid on the block, so I wont overpay and that will have synergy with our business,'" Gillis said, adding Mayer and AOL chief executive Timothy Armstrong know each other from their Google days.