What happened

Shares of Altaba (AABA) gained 18.2% in January of 2019, according to data from S&P Global Market Intelligence. The investment fund, whose core asset consists of 283 million shares in Chinese e-commerce giant Alibaba (BABA -0.99%), soared thanks to Alibaba posting a strong earnings report.

So what

In the third quarter, Alibaba's sales rose 41% year over year to land at $17.1 billion. Earnings jumped 15% higher to $1.77 per share. Your average Wall Street analyst had been looking for earnings near $1.67 per share on sales in the neighborhood of $17.6 billion, so it was a mixed report, but Alibaba delivered where it mattered most.

Check out the latest Alibaba earnings call transcript.

Alibaba's logo, featuring a smiling genie

Image source: Getty Images.

Now what

Altaba couldn't quite keep up with Alibaba's 22.9% gain in January, because the firm recently converted nearly one-fourth of its Alibaba holdings into cash. Those funds will eventually be returned to Altaba's shareholders through some combination of dividends and buybacks, with an eye toward minimizing the tax impacts of these shareholder returns. In the meantime, the cash buffer acts as a dampener to Alibaba's returns and makes Altaba a less volatile stock.

If Altaba ever figures out how to perform a completely tax-free return of Alibaba's value to its own shareholders, there'd be a 24% additional gain involved, simply because this stock trades that far below the net value of Altaba's total assets. Until then, you can think of Altaba as an "Alibaba Lite."