Yahoo Sags 4% After Alibaba’s Q2 Earnings Disappointment

After Alibaba reported lower-than-expected financial performance in its second quarter, shares of Internet portal and mobile shop Yahoo fell around four percent in regular trading. Alibaba’s own equity slipped a slightly higher percentage, giving up nearly five percent in the same period.

As TechCrunch reported this morning, Alibaba’s earnings came in under expectations, with the Chinese e-commerce firm growing a slimmer-than-anticipated 28 percent, compared to the year-ago period. Weaker Alibaba financial results come in the wake of broader warning signs of a slowing Chinese economy; the Chinese government recently devalued its currency compared to the dollar on the heels of draconian controls on the country’s stock market, designed to support slipping shares.

Yahoo’s fortunes are yet tied to Alibaba, despite the firm’s plan to spin off its investment stake into a new company called “Abaco Holdings.” Yahoo hopes to unload its equity in Alibaba in a tax-advantaged fashion that may let it avoid a stiff bill from the U.S. government.

The value of that spin-off, expected to execute in the fourth quarter of this year, declines in keeping with slippage in the value of individual Alibaba shares; the further that Alibaba falls, the lower value the asset that Yahoo hopes to release. Hence, Yahoo is itself worth less today due to the friction.

Yahoo’s own public performance has long been tied to the value of Alibaba, after the American firm spent $1 billion years past to acquire a large fraction of the Asian technology giant. As the value of Alibaba skyrocketed, Yahoo was granted a buffer from its own lackluster internal performance. Now, following Alibaba’s IPO, and the coming spinoff of the equity discussed here, Yahoo is decoupling from its former investment.

That Alibaba is worth a firm multiple of Yahoo only adds a historical wrinkle to the mix.