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Reportedly, Yahoo! Inc. (YHOO - Analyst Report) is set to shut its music service in China on Jan 20, 2013. Therefore, Chinese customers will no longer avail the service in the country. The company said that the move was designed to streamline its operations.

Yahoo has been disposing off its assets in China. Chinese e-commerce firm Alibaba Group Holding Ltd runs Yahoo China, and the Sunnyvale-based company now owns a 23.0% stake in Alibaba. Earlier, Yahoo sold part of its share in Alibaba for $7.6 billion with the intention of using the proceeds to acquire new companies.

Yahoo has been actively restructuring its operations over the past year. Yahoo will close down its Korean offices by the end of fiscal 2012. Since 1997, Yahoo has been doing business in Korea. However, the Korean operation was facing incremental challenges from local start-up Internet companies that were providing services at cheaper rates.

Google Inc. also appears to be withdrawing from China, as it has closed down both its shopping search and Music Search services in the country. Google has been battling against stringent Chinese government’s censorship laws. Thus, failing to find a favorable platform in China, Google decided to transfer its resources to other areas instead.

The Chinese online market is now dominated by local player Baidu Inc. (BIDU - Snapshot Report) which holds 73.0% market share followed by Qihoo that gets 10.0% of the traffic. Google holds the fourth place with 5.0% traffic, while Yahoo has a paltry 0.25%. Thus, it makes sense for Yahoo to leave the online music market in China.

In the third quarter of fiscal 2012, Yahoo reported revenue of $1.20 billion, which was down 1.3% sequentially and 1.2% year over year. TAC costs were down 17.7% sequentially and 22.2% from last year. Excluding these costs in all periods, net revenue was essentially flat on a sequential basis and up 1.6% from last year, in line with the consensus estimate.

Yahoo, Baidu and Google all have a Zacks #3 Rank, which implies a Hold rating in the near term.

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