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Broad Gains Drive Dow Higher and Yahoo! Jumps on Alibaba IPO

By Travis Hoium - Mar 17, 2014 at 3:30PM

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All 30 Dow Jones Industrial Average components are higher today, and so is Yahoo after Alibaba said it will go public.

Crimean citizens on Sunday voted overwhelmingly in a disputed referendum to break the territory from Ukraine and rejoin Russia, but the fallout may not be as bad as many investors and economists had feared. The U.S. and European Union imposed sanctions on Russian and Ukrainian leaders in connection with the referendum, but it doesn't look like the situation will for now be economically damaging to Ukraine or Russia.  

That situation was enough to push the Dow Jones Industrial Average ( ^DJI 0.00% ) 1.1% higher today in more of a relief rally than anything driven by fundamental news. All but one of the Dow's 30 components were up as of 3:30 p.m. EDT, with McDonald's standing as the outlier.

Yahoo! to cash in on Alibaba
The big news of the day came from outside the Dow Jones, with Yahoo! (NASDAQ: YHOO) finally looking to realize some of the value of its nearly 25% stake in Alibaba. The Chinese Internet company announced that it will file for an IPO in the U.S.; Yahoo!'s stake may be worth $37 billion, according to a Bloomberg survey of analysts.  

That's a huge increase from the $1 billion Yahoo paid for 40% of the company in 2005 and is one of the main reasons investors still see value in Yahoo!. But it also brings up some major questions for the company.

If Yahoo! can turn its stake in Alibaba into a big pile of cash, what does CEO Marissa Mayer do next? Yahoo! is worth about $40 billion on the market right now; selling 10% of Alibaba could leave it with $20 billion in cash. If that results in acquisitions that do little to help the bottom line then investors could flee the stock.

But if Mayer returns cash to shareholders and finds profitable ways to improve organic growth, Yahoo! could generate significant gains over the next year. But she has to manage the cash wisely because Yahoo!'s core business isn't growing, and throwing good money after bad isn't going to please investors.

Tech companies don't have the best track record of acquiring companies, and prices may be through the roof after Snapchat turned down a $3 billion buyout offer from Facebook, which turned around and spent $19 billion to buy WhatsApp. The market is excited about Yahoo!'s potential haul today, but what the company does with that cash over the next few years will show if there's real value in its core business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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