Alibaba IPO: Yahoo's Marissa Mayer in the spotlight as Chinese giant goes public

Yahoo owns a 22.5% stake in Alibaba after making $1bn investment- but IPO could be a make or break moment for Mayer

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When Alibaba, China’s answer to eBay and Amazon, lists in New York tomorrow, it could be make or break for Yahoo boss Marissa Mayer.

Alibaba’s listing is set to be the biggest ever – valuing it at an estimated $160bin – and Yahoo plans to sell down its stake in the Chinese e-commerce giant from 22.5 per cent to 16.3 per cent as part of the float, raising up to $8 billiion.

Good news you might think, but as Alibaba’s stake becomes less significant, Yahoo’s US business will be increasingly in focus – and that could spell trouble for Ms Mayer and the rest of the company’s management.

An estimated half of Yahoo’s value currently comes from its Alibaba investment, with most of the rest coming from cash reserves and a stake in Yahoo Japan. Its core US business carries almost no premium.

“It’s going to put much more pressure on the Yahoo board and the team there because the performance is not going to be masked by what’s happening on the other side of the world,” says Ian Maude of Enders Analysis.

Since Ms Mayer arrived from Google in 2012, Yahoo shares have risen almost 180 per cent – from $15.36 to $42.77. But the rise has been chiefly been down to increase in value of the Alibaba stake with Maude joking that Yahoo has been an “Alibaba tracker fund”.

Ms Mayer has failed to reverse the trend of falling revenues and Yahoo’s last quarterly results, released in July, were her worst since taking the helm.

“She’s done absolutely nothing to generate value for the US core business but she has a ton of options that have gone up in value thanks to Alibaba group which she had nothing to do with,” says Brett Harriss, an analyst at New York based Gabelli & Co. who covers the company.

Mr Harriss says there is anger among investors and estimates Ms Mayer has “a year” to turn things around.

As well as poor financial performance, Ms Mayer’s management style has faced criticism. Commentators were bemused by her decision to scrap working from home, while an unflattering Vanity Fair profile suggested she had an “imperious style” of working.

 

Employees are also said to be unhappy, with some taking to internal message board to express anger over Ms Mayer’s introduction last year of a new staff ranking system that reportedly led to up to 600 employees being fired.

And in another bizarre but no less damaging incident Ms Mayer reportedly kept leading advertising executives waiting for nearly two hours after apparently falling asleep.

But while her performance today has left shareholders wanting, the Alibaba float presents an opportunity for Ms Mayer to turn things around.

“It’s a positive,” says Mr Harriss. “The first benefit is there’s a big influx of cash and the second is going to be ease of valuation for the rest of the company now that Alibaba’s is publicly traded.”

Yahoo has pledged to return half of the proceeds from the float to shareholders but the remaining estimated $3bn after tax could be put towards M&A. Ms Mayer last year spearheaded the acquisition Tumblr for $1.1bn, seen by many as a coup.

But Mr Harriss says: “So far her M&A has not been effective. When she came into the company it was generating $1.7bn of EBITA, she spent $2bn on acquisitions and now the company is going to generate $1.2bn. It seems like its destroyed value."

One thing that’s clear is that post-Alibaba IPO, Ms Mayer will be in the spotlight.

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