Expect further fallout from the Alipay swindle. Yahoo! (Nasdaq: YHOO) and Japan's Softbank continue to negotiate with Alibaba in an effort to be made whole, after Alibaba transferred its PayPal-esque Alipay platform without compensating its significant investors. Now Alibaba CEO Jack Ma has come to the United States to tell Yahoo! how to run its company.
Speaking at All Things Digital's D9 conference, Ma suggests that Yahoo! should consider separating itself into smaller companies.
It's easy to see where Ma stands to benefit. He would love nothing better than to get Yahoo! to sell back its 43% stake in Alibaba. However, he's not alone in arguing that Yahoo! isn't being fairly valued for the sum of its parts.
Greenlight Capital's David Einhorn was singing this tune a month ago. A good chunk of Yahoo!'s share price is backed by its stakes in Alibaba and Yahoo! Japan.
Unfortunately all of this is easier said than done. There would be hefty taxable implications in an outright sale. A spinoff to shareholders makes more sense, but where would that leave Yahoo!?
No one expects Yahoo! to catch up to Google (Nasdaq: GOOG) in paid search, and it's alreaded conceded its traditional search business to Microsoft (Nasdaq: MSFT) in exchange for juicy payments. Yahoo! is doing well in display advertising, but investors have generally stayed away from the lower-margin display market.
Yahoo! is taking steps to regain focus. It sold its HotJobs work listings site to Monster (NYSE: MWW), and email specialist Zimbra to VMware (NYSE: VMW), last year. In other words, it's already doing its part to get smaller.
Ma's opinion is certainly qualified. Between Alibaba Group's appendages -- Alibaba in B2B, Taobao in consumer marketplaces, and until recently, Alipay -- he's overseeing a booming dot-com empire in the world's most populous nation. However, no one seems to mention that Yahoo!'s best reason to stay whole is the possibility that spinning off its more attractive pieces will reveal the feebleness of its core business.
Yahoo! doesn't want that dire scenario to happen, and rightfully so.
What would you do if you were Yahoo! CEO Carol Bartz? Share your thoughts in the comment box below.
