Yahoo to retain bigger stake in internet giant Alibaba after IPO

Yahoo posted disappointing quarterly earnings late on Tuesday but cheered investors with news that it would retain a bigger slice than expected of its massive shareholding in internet retail giant Alibaba when the Chinese firm has its monster initial public offering (IPO).

Yahoo also said it would return at least half of the expected billions of dollars of proceeds to shareholders from the shares it sells in the IPO.

Yahoo reported a quarterly profit of $272.6 million, or 26 cents a share, down from $335 million, or 30 cents a share, a year earlier.

Revenue in Yahoo's display advertising business decreased 8 per cent to $436 million.

“Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results,” said Yahoo chief executive Marissa Mayer.

“While several areas showed strength, their growth was offset by declines. Yahoo Search, for example, had a strong quarter…. Our social, mobile, video and native areas also grew with significant momentum, collectively gaining nearly 90 per cent year-over-year.

“However, display remains an area of investment and transition. In Q2, we saw display revenue decline, further highlighting the fact that we need to work faster to ameliorate the negative trends.”

Macquarie Research analyst Ben Schachter said: “What you see is the fundamentals at core Yahoo continue to deteriorate, but there's at least some good news on the Alibaba front.”

Alibaba, which has valued itself at roughly $130 billion, could be the biggest technology IPO this year when it goes public, and Yahoo owns roughly 23 per cent of the Chinese internet retailer.

Yahoo said Alibaba agreed to allow Yahoo to reduce the maximum number of shares it is required to sell in the IPO from 208 million shares to 140 million.

Ken Goldman, chief financial officer of Yahoo, said: “We would like to take this opportunity to let our investors know that we are committed to return at least half of the after-tax IPO proceeds to shareholders…”