Yahoo! has done extremely well lately, but the shares are falling after a weak earnings report. Yahoo! has taken big strides toward growing its user base and improving the user experience on various Yahoo! sites.

The company's core businesses should start seeing organic revenue and earnings growth after declining for a number of years. It should be able to monetize Tumblr more effectively in the near future, and the surging value of its equity stakes will drive continued upside in Yahoo! shares, as well.

Alibaba's earnings growth
Yahoo!'s 24% stake in Alibaba is becoming more valuable. As the leader of e-commerce in China, Alibaba has immense revenue and earnings potential. The company is widely expected to hit the public equity markets within the next couple of years.  

However, a delayed IPO is still a win for Yahoo! investors because strong growth in Alibaba's earnings will lead to higher valuation multiples in the IPO. Yahoo! will be able to extract a better value by holding on to its stake. In Yahoo!'s last earnings report, the company disclosed that Alibaba has grown its quarterly revenues by 51% and has a high net income margin of 45%.

With such rapid earnings growth, Alibaba will be more valuable down the road. Some analysts project that Alibaba may be worth as much as $150 billion. Yahoo! has a lot to gain from Alibaba's earnings; in 2013's final quarter, for instance, Yahoo!'s earnings from its Asian holdings, including Alibaba, made up 65% of Yahoo! total net income.  

Yahoo!'s management is buying back a lot of stock. The company bought back more than $3.3 billion of stock in 2013. Going forward, incremental stock repurchases should aid in boosting Yahoo!'s EPS. 

Closing the loop
In 2013, Yahoo!'s core metrics and user traffic grew rapidly, but the company's revenues declined. Total user traffic is rising, with more than 800 million unique users and 400 million mobile users reported during 2013. The company has made a number of acquisitions, including Summly and Aviate, to develop better mobile-based technologies and apps which will aid in delivering a better experience for end users.

Yahoo! had the highest number of unique visitors in the U.S., slightly ahead of Google (GOOGL -1.58%). Yahoo! had more than 195 million visitors, while Google's unique visitor count stood at 192 million in December, according to comScore. However, Google remains substantially ahead of Yahoo! in terms of search. Google's share of the search market in the U.S. stood at 67.3%, while Yahoo's stood at only 10.8% in December, according to comScore data.

As Yahoo!'s metrics are improving, the company's monetization potential increases substantially as it creates more revenue-generating opportunities from advertising. The company launched newer ad products for marketers at CES, and these new initiatives should enable the company to close the gap between rising metrics and declining revenues.

Tumblr monetization
Yahoo!'s presence in the social media space has grown significantly through the acquisition of Tumblr. The rapidly growing Tumblr now attracts more than 300 million monthly visitors and is very popular among the younger generation. Tumblr has a strong footing in mobile devices, and it boasts of more than 168 million blog posts. Tumblr is a growing asset and has the potential to be a major revenue-generating asset for Yahoo! down the road. Tumblr's presence on social media still lags Facebook (META -5.68%), Google+, and Twitter (TWTR).

Facebook remains the dominant social media player with 1.23 billion users at the end of 2013. It also has a very strong position in mobile devices, with 61.5% of total users coming from mobile. On the other hand, Twitter has 232 million users and more than 76% of its users are from mobile devices. Both Facebook and Twitter are closing the gap between revenue and users by aiding marketers in developing better advertising campaigns on mobile platforms. 

If Tumblr can start monetizing its users on mobile, the social media platform can generate sizable revenues for Yahoo!. The company recently disclosed that Tumblr is now utilizing Yahoo!'s advertising technologies to monetize its users through Tumblr's sponsored posts, offering an attractive way for advertisers to target consumers. Tumblr's sponsored posts are very much in line with Facebook's sponsored stories and Twitter's promoted tweets, and should start attracting more advertisers.

Going forward
Yahoo! has made big strides in developing its presence on social and mobile devices, and in the process gained more users. The company's core Yahoo! properties and Tumblr can generate more revenue from advertising to slow revenue decline. Alibaba's continued growth will also aid substantially in driving Yahoo!'s earnings and stock price.