Yahoo spins off its Alibaba stake. Here comes the scrutiny

Marissa Mayer’s two-and-a-half-year tenure as chief executive of Yahoo (YHOO) hasn’t exactly been smooth. But she’s had one big safeguard keeping the company’s stock up: a giant stake in Alibaba (BABA). When the massive Chinese e-commerce startup went public last September, Yahoo banked $9.4 billion on a tiny investment its co-founder, Jerry Yang, made back in 2005. Yahoo still owns a 15.4% stake in Alibaba, and many of its shareholders believe it’s more valuable than Yahoo itself.

That’s why, shortly after Alibaba’s IPO last fall, activist investor Starboard Value began pressuring Mayer to sell off the remaining stake in the most tax-efficient way possible. (The firm also believes Yahoo should sell itself to its Web 1.0 peer AOL.)

On Tuesday, Mayer appeased Starboard’s other disgruntled investors by announcing a spin-off of its remaining Alibaba stake. The spin-off, announced ahead of the release of Yahoo’s fourth quarter earnings report, will save the company $16 billion in taxes and give Yahoo shareholders stakes in a new, publicly traded entity called SpinCo. It is set to happen in the fourth quarter of this year. (Yahoo will retain its stake in Yahoo Japan, which is worth $7 billion.)

With the Alibaba shares separated from Yahoo’s core business, Mayer is under more pressure than ever to deliver the turnaround she was hired to execute. She spent the majority of Yahoo’s earnings call touting the company’s progress on her plan, which carries a new acronym: MaVeNS.

MaVeNS stands for mobile, video, native, and social. (The awkward term follows the advertising world’s equally as cumbersome “SoLoMo,” as in social, local, mobile.) Mayer believes growth in these areas will offset declines in display advertising.

She touted growth in Yahoo’s mobile business, which brought in $254 million in revenue in the fourth quarter, a 23% increase over the previous quarter. Yahoo’s media properties now reach more than 575 million people each month. Mobile accounted for $1.26 billion in gross revenue for the year. It’s encouraging growth—that revenue did not exist before Mayer joined the company. “In late 2012, this management team changed course from a confused, web-based strategy which preceded us, to a beautiful, app-based strategy,” she said during the call.

But that is still a small sliver of Yahoo’s overall business, which continues to shrink. The company’s $1.179 billion in quarterly revenue was a 1% decline from last year. The company’s net earnings of $166 million marks an 84% decline over the year prior. And Yahoo’s non-GAAP earnings per share of $0.30 is a 35% decline over the year prior.

Thanks to the spin-off announcement, Yahoo’s shares jumped more than 7% in after-hours trading. After the deal is executed at the end of this year, Yahoo’s stock will no longer be padded by Alibaba. Mayer’s deft moves as a “steward of capital,” in her words, won’t matter once Yahoo owns none of Alibaba. For the first time since she joined the company, Yahoo will be evaluated solely on its own merits.

Mayer knows this, and for the last year, she has emphasized the long game. She even pointed out that Steve Jobs didn’t come up with the iPod until five years after he returned to Apple. But until Mayer comes up with Yahoo’s version of the iPod—metaphorically speaking—shareholders will have to settle for MaVeNS.

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