Yahoo! Inc. (NASDAQ:YHOO)’s stake of about 23% in Alibaba has led to it being at the center of a hot debate between Mike Murphy and Josh Brown on CNBC. Since it is a significant stake that Yahoo! Inc. (NASDAQ:YHOO) has in Alibaba, the company’s health will be impacted significantly by how well Alibaba’s Initial Public Offering progresses.
“Marissa Mayer [Yahoo! Inc. (NASDAQ:YHOO)’s CEO] hasn’t made any investments that have boosted earnings, boosted revenues, innovated anything substantial, she has done some things that maybe will bear fruit at some point in the future but she doesn’t have a great track record […],” said Brown.
Brown pointed out that Alibaba plans to use $6 billion of the stake it will get to make some investments and another $6 billion of the proceeds will be used to buy back some of Yahoo’s shares. He further added that as soon as the word on the story about Alibaba is going to lose heat, and it most certainly will after the IPO, people are going to dump the shares of Yahoo they own. Brown even went on to say that Yahoo! Inc. (NASDAQ:YHOO) is a stagnant business in the web content segment bereft of any growth. Hence, it cannot be expected to provide its shareholders with above-average returns in the future.
However, Murphy didn’t see eye to eye with Brown as far as Yahoo’s profitability is concerned. He pointed out the rapid escalation of Yahoo! Inc. (NASDAQ:YHOO)’s average monthly users from 250 million to 450 million, which is approximately the same number of users that WhatsApp has. It was valued at $19 billion when Facebook Inc (NASDAQ:FB) bought it.
As Alibaba has received an average valuation of $200 billion, Murphy valued Yahoo’s stake in the company at over $40 billion. Yahoo! Inc. (NASDAQ:YHOO) with a market cap of $39 billion owns a significant portion of Alibaba, and therefore investors who can’t participate in this IPO should instead buy Yahoo! Inc. (NASDAQ:YHOO), advised Murphy.