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Analyst Boosts Yahoo Stock Price Target on Rising Value of Stake in China's Alibaba

Marissa Mayer Headshot - P 2013
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Yahoo CEO Marissa Mayer

While core operations will continue to face challenges, UBS analyst Eric Sheridan raises his target by $7 and reiterated his "buy" rating.

UBS analyst Eric Sheridan on Friday raised his price target on Yahoo's stock by $7 to $37 and reiterated his "buy" rating. He cited an updated valuation of Chinese online giant Alibaba, in which Yahoo owns a stake.

"We adjusted our estimates for Alibaba to reflect elevated growth rates for longer than we initially expected and lower investments to support that growth," Sheridan wrote in a report. He cited comScore traffic data, which shows August as the fifth consecutive month of page view growth in excess of 130 percent and unique visitor growth of around 50 percent for Alibaba.

The analyst raised his 2014 Alibaba revenue estimate to $11.8 billion from $11.1 billion and his operating income estimate to $5.2 billion from $3.9 billion.

Yahoo, led by CEO Marissa Mayer, previously sold part of its Alibaba stake.

Alibaba has been eyeing an IPO. Sheridan said the firm is likely looking for a $100 billion valuation when it goes public -- "above our prior $70 billion estimate."

Based on its shareholder agreement, Yahoo has to sell half of its stake in an IPO, which the analyst said could come in early 2014.

"Yahoo may be able to conduct a second sale in a more tax-efficient manner," Sheridan wrote. "In total, this implies an $18.7 billion post-tax value for Yahoo's entire Alibaba stake -- or $17.10 per share."

But he also highlighted: "We continue to believe core Yahoo will face near-term revenue growth challenges due to unfavorable mix shifts (premium to non-guaranteed, U.S. to international, desktop to mobile)."

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai