Yahoo To Spin Off Alibaba Stake; Q4 Profit Falls, Yet Tops Street

(RTTNews) - Shares of Yahoo! Inc (YHOO) surged 7 percent in after-hours trade on Tuesday, after the company said it would initiate a tax-free spin-off of its remaining stake in Chinese e-commerce company Alibaba Group (BABA), bowing to demand that shareholders partake the priced investment.

Yahoo reported a decline in fourth-quarter profit, hurt by a drop in ad revenues with its search business flat, revealing limitations as to the turnaround plans of CEO Marissa Mayer, the lone sweetener being the strength in mobile revenue. However, Yahoo's quarterly earnings topped Wall Street estimates, even as revenue fell shy of expectations.

Yahoo said it would spin off its remaining stake in Alibaba into a newly formed independent registered investment company, the stock of which would distributed pro rata to Yahoo shareholders. This will result in the formation of a separate publicly traded company.

The completion of the spin-off is expected to occur in the fourth quarter of 2015 after the expiration of Yahoo's one-year lock-up agreement on the Alibaba shares entered into, in connection with the IPO. The transaction is subject to certain conditions, including final approval by Yahoo's board.

Following the spin-off, Yahoo will continue to operate its core business and hold its 35.5 percent interest in Yahoo Japan, which is worth about $7 billion.

The new company will own all of Yahoo's remaining 384 million shares of Alibaba, valued at about $40 billion, as well as a legacy, ancillary Yahoo business.

The spin-off comes under pressure from some shareholders and activist Starboard Value LP. Starboard has been pressurizing Yahoo to monetize non-core assets, improve profitability and seek a combination with AOL.

Yahoo reported a fourth-quarter profit of $166 million or $0.17 per share, compared with $348 million or $0.33 per share in the prior year.

Excluding items, adjusted earnings for the quarter were $0.30 per share, compared with $0.46 per share a year ago. On average, 31 analysts polled by Thomson Reuters expected the company to report earnings of $0.29 per share for the quarter. Analysts' estimates typically exclude special items.

Revenues for the fourth quarter slipped to $1.25 billion from $1.27 billion last year. Excluding traffic acquisition costs, or TAC, revenue was $1.18 billion for the quarter, compared with $1.20 billion a year ago. Analysts had a consensus revenue estimate of $1.19 billion for the quarter.

Revenue from display ads, excluding TAC, dropped 5 percent to $464 million in the quarter. The number of ads sold increased about 17 percent from a year ago, while price-per-ad fell nearly 20 percent.

Search revenue, excluding TAC, was flat at $462 million. Paid clicks climbed 10 percent, and price per click gained 7 percent.

Mobile revenue was $254 million, compared with $249 million a year ago.

Yahoo has been investing in newer ad businesses like mobile, social and video, to offset the weakness in display business.

During the quarter, Yahoo closed its $640 million acquisition of video-advertising service BrightRoll Inc.

YHOO closed Tuesday at $47.99, down $1.45 or 2.93%, on a volume of 44.8 million shares on the Nasdaq. In after hours, the stock gained $3.42 or 7.13% at $51.41. In the past year, the stock has been trading in the range of $32.15 - $52.62.