Much of Yahoo's bounceback can be chalked up to its stake in a company called Alibaba -- an investment that Yahoo made in 2005 when Mayer was still a Google executive and founder Jerry Yang was still "chief Yahoo."
Yahoo owns 24% of Alibaba, an e-commerce giant that has been described as China's Amazon, eBay and PayPal wrapped in one. In truth, Alibaba is a mix of all of those -- and more. Its nine distinct businesses span all parts of the e-commerce chain, from supplier marketplaces to online shopping destinations to payment processing.
Alibaba is already huge, and unlike Yahoo, it's growing. Alibaba's second-quarter sales jumped a whopping 61% over the year, and net income soared 145%. That massive size and scope make Alibaba one of the hottest companies in China, and investors are salivating over Alibaba's impending initial public offering. Hong Kong's stock exchange is even considering changing a regulatory rule in order to score Alibaba's IPO.
Alibaba's growth is in stark contrast to Yahoo, which remains in the throes of a turnaround. Earlier this month Yahoo reported that its third-quarter sales and profit both fell over the year. But investors sent the stock higher because Yahoo revealed it won't need to sell as much of its Alibaba stake in the IPO as it previously believed. In fact, Yahoo's shares are up 90% over the past year despite continued troubles in its core advertising business.
"The valuation upside is being driven by Alibaba, while Yahoo itself drags results down," Indigo Equity Research analyst Nick Landell-Mills wrote in a research note after Yahoo's third-quarter results.
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