(YHOO) Yahoo-Alipay Settlement in Progress

Yahoo Inc. (YHOO), Chinese e-commerce firm Alibaba Group Holding Ltd. and Japanese Internet company Softbank Corp. are on track to reach a settlement regarding the ownership of online-payments business Alipay. The trio seems pleased with the progress on the transfer of Alipay, although negotiations continue.

Last year, Alibaba had transferred ownership of Alipay to a company controlled by its CEO Jack Ma. This became the subject of dispute between the three parties. In its defense, Alibaba said the transfer of Alipay was necessary to comply with new Chinese regulations that restricted foreign ownership in e-payment companies.

Alipay and Taobao, Alibaba Group’s online auction and shopping sites, have been valued at up to $40 billion in China’s fast-growing Internet market. Yahoo’s 40% stake in Alibaba, which controls several e-commerce sites, is considered as one of its most valuable assets, along with its 35% ownership in Yahoo Japan.

The transfer is now only one step away from finalization. It only requires the final nod from Softbank Corp. Upon finalization, Yahoo will be deprived of a valuable asset and it is not yet clear what it would get as compensation for the big loss. For some time now, Yahoo has been fending off offers to divest its stake in Alibaba, which may be a good thing considering the high value of the asset.

Although there is no clear indication of the settlement, the concerned parties seem optimistic on the resolution of this long-drawn tussle.

Yahoo! Inc. is one of the leading providers of web-based services and advertisements. The company reported first quarter results, with earnings of 17 cents per share, beating the Zacks Consensus estimate by 4 cents. GAAP revenue of $1.21 billion, was down 20.4% sequentially and 24.0% year over year. TAC costs declined 53.1% sequentially and 67.8% from last year. Yahoo’s main competitors are Google Inc. (GOOG) and Microsoft Corp. (MSFT).

We are maintaining our Neutral rating over the long term (6–12 months) on Yahoo. Currently, the stock carries a Zacks #3 Rank, indicating a short-term Hold recommendation.

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