Marissa Mayer became the CEO of Yahoo on July 16, 2012. Since then, the stock has exploded from ~$16 to over $US35.
But while Mayer has done a remarkable job improving the working culture at Yahoo, hiring mobile developers, and redesigning the company’s wide array of products, she is not the only reason for Yahoo’s stock turnaround.
In fact, the main reason Yahoo stock is up so much is that, way back in 2005, Yahoo bought 40% of a tiny Chinese e-commerce company called Alibaba for $US1 billion.
Then, over the next six years, Alibaba turned into a massive hit.
In the spring of 2012, Alibaba bought a portion of its stock back from Yahoo for $US7.65 billion. When Mayer took over in the summer of 2012, she agreed to use some of that money to buy back Yahoo stock.
This financial engineering drove Yahoo’s stock price. So did Yahoo’s remaining stake in Alibaba, which continued to grow in value as the Chinese company’s market cap went from ~$50 billion in 2012 to a rumoured $US100 billion now.
Soon, Yahoo will be able to realise that gain. Alibaba is expected to IPO in 2014. When it does, Yahoo will sell all but 10% of its stake in the company, adding another few billion dollars to its bank account — money that will almost certainly fuel more share buybacks.
Despite its prominent role in Yahoo’s turnaround, Alibaba remains a mysterious company in the US. To remedy that, I visited the company during my recent trip to China.
Since then, the stock has exploded. But, really, much of the credit goes to Alibaba -- a Yahoo investment in China that has performed exceptionally well.
In China, Hangzhou is best known as a tourist destination, thanks to a beautiful lake called West Lake.
Hangzhou has three million people, making it a small city for China. On the drive from the airport to the campus, I saw a homes like this one.
When we finally entered a building, we found this Lambourgini replica, built entirely from parts bought on Taobao.
On the walls, there were photos from company events -- like the annual wedding ceremony held at Alibaba HQ…
There are two secrets to its success. The first is that Taobao is entirely free to use. There are no fees for buyers or sellers.
The second is that Alibaba blocks China's most popular search engine, Baidu, from searching Taobao and Tmall
In a way, Taobao/Tmall is more like Google than eBay or Amazon. (Google makes all its money from commercial searches.)
Alibaba's biggest vulnerability is mobile. Until recently, it was developing mostly for the Web. Now it's building its own mobile OS and all products are mobile first.
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