Dynamic Wealth Management Headlines:Alibaba opens doors
Larry Claasen
Wednesday, 11 May 2011
http://www.fm.co.za/Article.aspx?id=142406
It's difficult to believe that in the mid-1990s, when it came to Internet search engines, Yahoo was seen as a serious rival to Google.
But where Google has gone on to become the world's dominant technology company, Yahoo has floundered. Net Applications pins Google market share at 85% while Yahoo is a distant second at 6,5%.
The company may have lost the browser war but this does not mean it is down and out. Reuters reports that Greenlight Capital, the hedge fund run by David Einhorn, has indicated in a letter to shareholders that it has taken a "significant" position in the group.
Einhorn shot to prominence when he correctly pinpointed the problems at investment house Lehman Brothers shortly before its demise in 2008. He made millions in predicting that the bank's share price would crash.
When the news broke on May 1 that Einhorn was bullish on Yahoo's prospects, the share price rose to itshighest level in about a year, closing 2,5% up at US$18,14.
The letter further states that Yahoo's 40% holding in the Chinese-based online company Alibaba Group is its trump card. With revenue up 43,4% to RMB5,55bn and operating profit rising 30,1% to RMB1,56bn for the year to end-December, the Yahoo offering now has added lustre.
Since its formation in 1999, Alibaba Group has grown in leaps and bounds to become a global leader in e-commerce for small businesses.
Einhorn is not alone in supporting Yahoo. The consensus view of 32 analysts who have submitted opinions to MarketWatch is that at its current share price the technology company is a buy.
This support of the group comes just as it has turned the corner. Its results for the first quarter of this year show a revenue rise of 6,4% to $890,5m and a sharp increase in "other income" — read Alibaba's contribution — that made earnings surge from $222m to $310m.
The rise in net earnings is a break from the dismal numbers it has been producing in the past few years.
Yahoo has been trying to sort itself out — it's cutting costs, has partnered Microsoftand sold its social bookmarking service Delicious, and there is talk of a spin-off of its engineering team Apache Hadoop — butthese efforts.
The lacklustre performance has meant that the remuneration of its CEO, Carol Bartz has dropped by 75% because she did not receive a bonus on top of her $1m salary.
However, if Alibaba keeps performing, she could very well see that change for the better.
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