Alibaba Major Shareholder Yahoo! Inc.

Yahoo Inc. is a significant shareholder of one of Asia’s largest ecommerce operators, the Alibaba group holding. After extremely encouraging second quarter earnings, Alibaba Group Holding released third quarter earnings which led to an agreement between it and Yahoo!, convincing the Chinese online retailer to sell some of its shares when it goes public.

Alibaba Group Holding announced its initial public offering scheduled for 2014. Yahoo will be required to decrease its shares to 200 millions shares. This represents a one fifth decrease in the number of shares held by Yahoo Inc. When the initial public offer was announced, Yahoo owned more than 520 million ordinary shares of this e-commerce site which translated to tens of billions of dollars. The value of Alibaba Group Holding is expected to increase to more than the current value of the company which is estimated to be $120 billion.

As a major shareholder in the company Yahoo Inc. was required to sell half of the amount of shares it owns in Alibaba immediately when the company goes public. However, search engine giant, Yahoo expressed interest to continue holding a significant part of the Alibaba Group Holding’s shares. One of the board members of Alibaba said that Yahoo is eager to build a strong, long term and mutually beneficial relationship with the Chinese e commerce operator especially because Jacqueline Reses, one of Yahoo! Inc. executives joined the board of Alibaba two years ago.

Yahoo Inc. has managed to earn an income that is solid and stable from Alibaba. This is what has made the company feel that it does not need to sell a significant part of its shares to increase revenue or to stay solvent. However, when Yahoo sells half of its shares in Alibaba Holding Group, its valuation will dramatically increase. Even if Yahoo sells close to 200 million shares, it will still remain with close to 300 millions shares. This is more than enough shares to fund yahoo after Alibaba goes ahead with the initial public offering.

Presently, Yahoo! Inc. owns about a quarter of Alibaba Group Holding (24% to be precise). The share value went up by over 5% in a few hours of trading after Yahoo was informed to decrease the number of shares it owns. After the sale of shares, Yahoo will remain with 208 shares only. However, Yahoo does not depend on the revenue it gets from Alibaba Group Holding. The search engine will still continue to get most of its income from advertising using display ads, video ads and banners.

Yahoo! Inc. efforts to diversify its array of services, to increase its income streams and to expand its target market are well know. The search engine giant has bought more than 20 stat ups over the past one year. In addition, Yahoo’s CEO has re-launched some of the core products offered by the company. The company is also focusing more on mobile version of its services to increase the number of people that can access them. The services that the company is currently focusing on include Fantasy Sports, news, Flickr, Yahoo Mail and Yahoo homepage.