Yahoo CEO Marissa Mayer will face a $10 billion decision in a few months. She already has made many changes since taking over nearly two years ago, but all the internal reshuffling and deal-making has merely been a prelude to her biggest test.
The pivotal moment in Mayer's tenure will come after Alibaba Group, China's e-commerce leader, completes one of the biggest initial public offerings of stock in U.S. history. The IPO triggers a provision requiring Yahoo Inc. to sell about 40 percent of its stake in Alibaba. The sale is expected to generate a major windfall that will intensify the pressure on Mayer to revive Yahoo's revenue growth after years of lethargy.
"This is Marissa's moment of reckoning," says Moshe Cohen, a Columbia University business professor who has been tracking Yahoo's ties with Alibaba.
Mayer acknowledged as much Wednesday during an appearance in New York at a conference hosted by TechCrunch.
"We know this is of critical importance to our investors," she said. She declined to say much more, citing securities regulations that restrict the public comments of executives involved in pending IPOs.
While the sale of Alibaba stock will be a short-term boon for Yahoo, it will also remove some of the financial scaffolding that has been lifting Yahoo's stock even as the company's revenue continues to slip. Most analysts say the Alibaba stake is the main reason that Yahoo's stock has more than doubled under Mayer because investors latched on to Yahoo shares as a way to get a piece of Alibaba's imminent IPO.
With much of the Alibaba support going away, "it's time to rev up revenue growth," says BGC Financial analyst Colin Gillis. "They will need to move the needle now."
One of the quickest ways Mayer could boost revenue would be to buy another company, something she will be in a better position to do after Alibaba's IPO is completed, likely sometime in August or September.
Although Alibaba probably won't set an IPO price for its stock until this summer, analysts estimate the Chinese company's market value at $150 billion to $200 billion. At that level, the 208 million shares that Yahoo is required to sell will bring in at least $10 billion. The Sunnyvale, California, company would still own about 315 million Alibaba shares that it could sell at a later date.
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