Alibaba sneezes and Yahoo gets a cold, so to speak.
Alibaba delivered an earnings report that was weaker than expected, which sent Alibaba shares falling by 9%.
As a knock-on effect, Yahoo is also tanking. It is down 6% this morning.
Yahoo owns 15% of Alibaba, so it is pretty much just a tracking stock for the Chinese online retailer. This explains, at least in part, why Yahoo is splitting itself up.
On Tuesday, Yahoo announced a plan to spin out its 15% stake in Alibaba into a standalone public company. This structure lets Yahoo shareholders get the full benefit of the Alibaba shares without taking an $US18 billion tax hit that would have occurred if Yahoo simply sold its stake in Alibaba.
While splitting off Alibaba is good for Yahoo shareholders, it’s also good, in a way, for Yahoo. It means Yahoo will no longer be whipped around based on the performance of Alibaba, which it has no control over.
Interestingly, though, Yahoo’s stock dropped 3% on Wednesday, the day after Yahoo announced the Alibaba spinout. And now, it’s poised to drop another 6%. This was supposed to be a moment of triumph for Yahoo, as investors have been demanding Yahoo spin out Alibaba. In the short-term, though, Yahoo is seeing its stock tank.