Alibaba steals limelight from Yahoo

The most interesting part of Yahoo’s most recent earnings release was the insight into the sales growth at Alibaba, the Chinese e-commerce giant in which Yahoo holds a 24% stake. It was almost as if the Yahoo figures were an afterthought.

If anything, the subsequent upside moves in Yahoo were far more to do with accelerated revenue growth for Alibaba in the fourth quarter. Revenue in the December quarter rose 66% to $3.06 billion. The company posted 51% growth in revenue in the September quarter, while net income as a proportion of sales was 45% in the December quarter.

Alibaba earnings reports are lagging by a quarter so we may well see an increase in positive sentiment towards the stock as we approach its much-anticipated IPO. The focus on Alibaba becomes more understandable when we realise that Yahoo’s stake in the company is worth $37 billion, while the entire Yahoo market cap is around $39 billion. It is not an exaggeration to say that Yahoo’s fate depends on Alibaba.

However, there might be more to Alibaba than many realise. To investors focused on US, UK and European companies, it will be sobering to realise that the Alibaba site processed over $5.75 billion in sales on the Chinese equivalent of Black Friday, while sites owned by Alibaba account for almost two-thirds of the packages delivered in China.

It is quite a relief to see a company that, for once, may eventually justify much of the hype that surrounds the IPO. The tech sector has come under pressure lately, with many citing over-valuation and bubble, so to float while markets are in a volatile space will certainly test investor appetite to its full. Amazon revolutionised the shopping experience in the west, and Alibaba has done the same in China. Investors can hardly be blamed for eagerly awaiting this market debut.

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