Why Yahoo! Stock Surged 10% on Thursday

It's all about the subsidiary.

Rich Smith
Rich Smith
Jun 8, 2017 at 8:30PM
Technology and Telecom

What happened

Yahoo! Inc. stock closed up 10.2% on Thursday -- a 17-year high for the stock.

So what

Yahoo! stock benefited from an even bigger 13.3% rally in shares of Alibaba Group Holding Limited, because it owns 15.2% of Alibaba's shares. The reason for Alibaba's surge is simple: At an "investor day" presentation on Thursday, the company revealed that it's expecting to grow revenues 45%-49% this fiscal 2018 (Alibaba's current fiscal year, which ends in March 2018). If this is the way things play out, Alibaba is set to trounce analyst expectations for 31% growth.

Farther out, Alibaba projects that it will pass $1 trillion in annual gross merchandise sales on its websites by 2020. Alibaba attributed its outsized revenue growth prospects to its success in new areas of business, such as cloud computing, digital media, and entertainment.

Stick figure explains stock chart.

Yahoo's stock surged on another company's good news. Here's how that works. Image source: Getty Images.

Now what

Yahoo! is in the process of selling its U.S. assets (including Yahoo! Finance) to Verizon. What remains after that sale -- rump Yahoo, or as the company plans to rename itself, "Altaba" -- will include both Yahoo Japan and Alibaba. Altaba's stock success, however, will depend disproportionately on the success of Alibaba, which has a market capitalization nearly seven times bigger than all of Yahoo! is worth today.

As such, Alibaba's success portends good things for its 15% stakeholder, and there's good reason for Yahoo! shares to soar today.