Is Yahoo! Inc. (YHOO) On the Edge?

Yahoo! Inc. (NASDAQ:YHOO) is facing difficult times at the moment due to tough competition in its core markets. Companies like Google Inc. (NASDAQ:GOOGL), Netflix Inc. (NASDAQ:NFLX) and Amazon.com Inc. (NASDAQ:AMZN) create an almost unbearable pressure on the media company, which almost reached a dead end, claims a report on CNBC.

Yahoo! Inc. (NASDAQ:YHOO) still has an ace in its sleeve, which is a 24% stake in Alibaba amounting to about 208 million shares. It is required to sell around 40% of them at Alibaba’s IPO thus gaining approximately $10 billion that might help the company strive to overturn its current unstable state. Opinions diverge when analyzing what should Yahoo! Inc. (NASDAQ:YHOO) do regarding this inflow of liquidity. Many suggest a passive course of actions involving repaying the shareholders and giving in, yet others suggest diversifying in content and mobile and make use of the cash windfall to have a secure start.

There is another opportunity for the troubled company to take into consideration, in particular, to be bought by Alibaba, which might pursue the transaction based on fruitful tax benefits.

“The market cap of Yahoo! Is about $30 billion and the stake in Alibaba is at about $40 billion. It’s gonna pay a tax of $10-12 billion on that if it realizes it, but it makes a lot of sense for Alibaba to buy out Yahoo!, because it wouldn’t have to pay tax on its own shares and it will reduce the overhang of Yahoo! selling into the market post-IPO,” argued Patrick Armstrong, Plurimi Investment Managers.

Currently, Yahoo! Inc. (NASDAQ:YHOO) is planning to diversify its content by hosting two comedy series: “Other Space” and “Sin City Saints”, following up Netflix Inc. (NASDAQ:NFLX)’s example. It also has shown significant growth in the mobile market, its search revenues grew by 6% on the year amounting to $428 million excluding traffic acquisition costs (ex-tac). Besides, Yahoo! Inc. (NASDAQ:YHOO)’s mobile search revenues practically doubled year over year. The only troubled aspect of this business is the display  revenue that shrunk by 7% to $394 million ex-tac. These figures bring some light on the picture, but we cannot be sure upon the company’s future yet.

Disclosure: none