Alibaba Alter Ego Rises on Nasdaq From Shell of Former Yahoo

(Beijing) — Shares of the former Yahoo Inc. rose roughly in line with its two main components on the first trading day that the former listing vehicle for the faded internet pioneer became a shell containing large stakes in Chinese e-commerce giant Alibaba and Tokyo-listed Yahoo Japan.

The stock rose 3.6% in the first trading day in New York under its new name, Altaba Inc., which is an abbreviation of “alternative for Alibaba.” By comparison, New York-listed shares of the actual Alibaba Group Holding Ltd. rose 3.4% during the Monday session, while Yahoo Japan Corp. was up 2.4% during the Tuesday trading day in Tokyo.

The original Yahoo was still a major force in the global internet search market when it purchased 40% of Alibaba Group Holding Ltd. for a then-eye-popping price of $1 billion in 2005, well before the Chinese company reached its current size. At Alibaba’s current market value, that stake would now be worth about $143 billion.

But Yahoo was at the start of a long-term decline even before the Alibaba tie-up as the company lost its direction and was overtaken by the more-nimble Google. Since the original tie-up, Yahoo has sold down its Alibaba stake to a current 15%. Yahoo ultimately sold its core internet assets to U.S. wireless carrier Verizon Communications Inc. this year, leaving behind the Alibaba stake along with 35.5% of Yahoo Japan in the listed company.

Before the sale to Verizon, Yahoo had told investors that stock could become an alternative for investors who wanted to buy Alibaba stock but liked the combination with Yahoo Japan, which has fared better than its U.S. namesake and has a current market value of about $25 billion.

“I think the stock will be attractive to investors who want to potentially buy Alibaba at a discount (when valuations diverge), and a similar logic follows for Yahoo Japan,” said Ryan Roberts, an analyst at MCM Partners. “That is the only reason I can see why this structure would be preferable to buying Alibaba or Yahoo Japan outright.”

He added the new company was using an “unusual structure” but one that might appeal to some investors. “In the days ahead, we’ll get a better picture of how it will trade, but ultimately the inability to unlock the components may result in a discount. Just how much is what the market will grapple with,” he said.

Speculation has emerged from time to time that the cash-rich and acquisitive Alibaba might be interested in buying back the 15% of its shares now held by Altaba in a bid to simplify the company’s shareholding and ownership structure. But Alibaba has indicated in the past it wasn’t interested in such a deal, which would carry a large tax burden due to the large appreciation in the value of its stake held by Altaba since the original purchase.

Contact reporter Yang Ge (geyang@caixin.com)