Alibaba Spikes, Yahoo Sags

Alibaba’s IPO touched down today to large success. The company’s shares soared more than 38 percent in regular trading, pushing the valuation of the Chinese e-commerce company north of $225 billion.

The success of the offering, however, did not bolster Yahoo, whose stock fell during midday trading, dipping under the $40 mark before partially recovering. Yahoo owns a large stake in Alibaba, making today a very important day for the Sunnyvale-based Internet company. Yahoo ended the day down 2.74 percent, dragging its market cap to just under $41 billion.

Why would Yahoo fall, if Alibaba rose? Yahoo’s stake in the Chinese firm is valued in the tens of billions, of course, meaning that if Alibaba does well, so does the value of the shares that Yahoo controls. The best explanation that I can muster to explain why Yahoo sagged, even as Alibaba soared, is simply that investors had expected an even larger Alibaba pop. If you had hoped that Alibaba would spike 50 percent, and not less than 40 percent, you might want to unload your Yahoo shares.

It’s an odd situation. What Yahoo does have, to its credit, is a massive chunk of now liquid equity that it can sell and use the proceeds to buy all sorts of things — anything that it wants, more or less. Yahoo and Alibaba have come to an agreement to lessen the amount of Alibaba stock that Yahoo has to sell, allowing the American company to retain a higher percentage of its shares in the Chinese firm.

What Yahoo has planned for its new monies isn’t immediately clear, but the company certainly has, as they say, cash for days.