Yahoo Inc.’s shares were up six per cent in heavy trading on Wednesday, after revenue figures released Tuesday after markets closed showed a surge in profit from its Alibaba unit.
Alibaba Group Holding Ltd., a Chinese internet company, saw its revenue in the fourth quarter jump 66 per cent from a year earlier to $3.06 billion US and profits more than double to $1.35 billion.
Yahoo holds 24 per cent of Alibaba, which is expected to list as early as next week on the New York stock exchange in an IPO that could value the Chinese company at $150 billion to $200 billion.
Yahoo shares were trading at $36.40 at noon, up 6.4 per cent from their close Tuesday and were the most-traded stocks on Nasdaq. At one point, the share price had surged as much as 9 per cent.
Yahoo’s own revenue from internet advertising has been listless, though it has seen some improvement under CEO Marissa Mayer.
Display ad revenue crept up by two per cent from the same time last year in the first quarter, the first improvement in three years. It is still well behind competitors such as Google and Facebook in grabbing internet advertising and it has been left behind on mobile use.
"We believe we are moving from our core business being in decline to modest or stable growth," Mayer said in a video conference call.
Yahoo earned $312 million US, or 29 cents per share, in the first quarter, down 20 per cent from $390 million, or 35 cents per share, in the same period last year.
But its $1 billion investment in Alibaba, made in 2005, is proving to be a substantial windfall and has made Yahoo attractive to the markets.
Alibaba has built a thriving e-commerce platform in China, one of the world’s largest retail markets, and the revenue figures released along with Yahoo’s results prove it has a business model that works.
It is expected to file a prospectus as early as Monday for its share sale, which could be the largest since the Facebook listing in 2012, Reuters reported.
Anticipated gain from the Alibaba investment is the main reason Yahoo's stock has more than doubled since Yahoo hired Mayer from Google in July 2012, according to stock analysts.
The other reason Yahoo looks good is its investment in Yahoo Japan, a joint venture with Softbank which also has a strong e-commerce component, said Macquarie Securities analyst Benjamin Schachter.
Yahoo's stakes in Alibaba and Yahoo Japan are worth nearly $29 per share, Schachter said.