Assessing Yahoo’s prospects after Alibaba’s initial public offering

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Sep. 24 2014, Updated 8:00 a.m. ET

The focus now shifts back to Yahoo’s core business after Alibaba’s IPO

Last week, Alibaba (BABA) became a public company in the U.S. stock exchange with its IPO (initial public offering) receiving an overwhelming response. Its stock finished its first day of trading at $93.89—up 38% from the $68 initial price that the company had set.

Yahoo (YHOO), which had an initial stake of 23% in Alibaba before the IPO, had to sell about 122 million shares of Alibaba during the IPO. Although Yahoo did receive an after-tax windfall of $5.1 billion after selling the shares, the focus now shifts back to Yahoo’s own core business of online advertising.

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Yahoo continues to struggle in the digital advertising space. Analysts expect the company’s digital display advertising business to show only a 2% growth rate this year, according to eMarketer and as the chart below shows. This is quite low compared to the healthy growth rates analysts expect from Twitter (TWTR), Facebook (FB), and Amazon (AMZN). Even AOL (AOL) could grow at a better rate than Yahoo. AOL has long been considered as an acquisition target for Yahoo.

Yahoo’s trying to grow its business with a number of products

Yahoo continues to either launch new products or acquire companies to grow its business. During the second quarter, Yahoo launched three digital magazines—Yahoo! Movies, Yahoo! Travel, and Yahoo! Beauty. Recently, the company also launched Yahoo! Health. Yahoo also integrated Tumblr, which it acquired for $1.1 billion last year, into its digital magazines. Tumblr is a social networking site that brands use to create and share content.

Yahoo is also optimistic that its mobile display as well as mobile search business will grow fast enough with the help of products like Aviate and Gemini. Yahoo acquired Aviate technology earlier this year. Aviate is a mobile application (or app) available for Android users. It offers intelligent information depending on the user’s location and context. Gemini is another platform that combines mobile search and native advertising. It helps advertisers manage and optimize their ads.

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