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Yahoo Stock Shoots Up on Merger Approval & Alibaba's Outlook

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It looks like Yahoo! Inc. is going to finish off in style. Shares soared to a 17-year high in response to the series of events that took place yesterday.

All’s Well that Ends Well

Yahoo announced that its stockholders approved the proposed sale of its core assets to Verizon (VZ - Free Report) . The sale is expected to conclude on Jun 13, 2017. As previously announced, Yahoo's remaining business, which includes the stakes in Alibaba and Yahoo Japan, along with convertible notes and non-core patents will become an investment company known as Altaba, Inc.

Verizon will take up Yahoo’s owned and operated assets (search engine, communications platforms and digital content), advertising products (Flurry, Brightroll and Gemini), social assets (Tumblr, Flickr, and Polyvore) and remaining real estate and merge them with one of its subsidiaries, AOL.

Yahoo! Inc. Net Income (TTM)

Concurrent with the announcement, Alibaba said that its fiscal 2018 revenues are anticipated to rise 45% to 49%. The announcement sent the company’s shares to a record high. Shares closed at $142.34, up $16.70 or 13.3%, adding around $43.1 billion to its market capitalization.

The two announcements saw Yahoo’s share price increase to $55.71, up $5.16, or 10.2%, the highest close since Sep, 22, 2000. Over the last one year, Yahoo has outperformed the Zacks Internet - Services industry. Shares gained 49.2% compared with the industry’s gain of 24.3%.

On the Flip Side

Thousands of employees are reportedly going to lose jobs as Yahoo merges with Verizon’s AOL. Recode’s reported figure is 1,000. Reports from TechCrunch and Reuters indicate 2,100 and 2,000 layoffs, respectively.

Both TechCrunch and Reuters have reported that most of the job cuts will take place in interchangeable departments – marketing, finance, human resource, and general administration. The job cuts will mostly take place in California and some outside the U.S.

Marissa Mayer’s Fate

Thought to be Yahoo’s potential savior when appointed as the company’s CEO in 2012, Mayer could not meet investors’ expectations and failed to turn Yahoo around. She was under tremendous pressure from the investor community, especially Starboard Value LP for the most part of her tenure at Yahoo.

With Yahoo’s core business getting acquired, experts say that venture capital and private equity firms could be a good match for her skills and experience.

According to Orly Lobel a professor at the University Of San Diego School Of Law, "She has lots of options on what she'll do next but venture capital is a common path for leadership of a public company gone sour."

Watch Out Google and Facebook

Purchase of Yahoo’s core business and subsequent retrenchments appear to be a part of Verizon’s increasing push into the lucrative digital advertising space, Alphabet (GOOGL - Free Report) and Facebook’s (FB - Free Report) stronghold. However, the pathway is not free of hurdles as other companies are also racing for the same pot of gold.

Verizon aims at becoming the preferred choice of advertisers by boosting its media business that includes AOL and its home-grown go90video service with Yahoo’s sites and billions of users.

To Conclude

Much of Yahoo’s fate depends on the post-merger developments and how Altaba plans and operates in the future. Meanwhile, we remain optimistic about Yahoo’s Asian assets and holdings in Alibaba, which could lead to growth going forward.

The sale of the core business, real estate, non-strategic patents and other non-core assets, and reduction in workforce should help the company generate significant cash.

Yahoo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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