One of China’s most powerful internet companies, Alibaba, spun off from its online payment service, Alipay. This disclosure by Yahoo on Tuesday caused Yahoo’s stock to dive 3.6%, or 62 cents, on Friday to $16.55. This is the third straight session that Yahoo stock has fallen because of worries with Alibaba and it has reduced Yahoo’s market value by almost 11% or $2.5 billion.
Investors are re-evaluating how much value Yahoo’s 43% share in Alibaba is really worth. Analysts are wondering if Yahoo will be able to make as much money from this investment as originally thought. As U.S. companies are trying to make money from China’s internet market, more and more are realizing just how many difficulties lie ahead. Even Google hasn’t been able to get through the all the regulatory and political obstacles in China.
Yahoo was frustrated in its own attempt to get into China and made a $1 billion investment in Alibaba over six years ago. Some analysts believe that the Alibaba investment, coupled with a 35% stake in Yahoo Japan, are worth about half of Yahoo’s current market value or $8 to $10 a share. Alipay was worth about $850 million or 65 cents a share according to Gleacher & Co.
Yahoo wants to be compensated for the loss. The CEO of Alibaba, Jack Ma, now controls Alipay, as it was turned over to another company owned by Ma. The reasoning given was that the payment service needed to be owned by Chinese in order to comply with Chinese law. Maybe one of the most distressing points to the loss of Alipay was that the transfer actually happened last August, but Yahoo said it is just now learning about it. Alibaba said that this incorrect and that the board of Yahoo was informed that Alipay had changed owners at a meeting in July 2009. Even if Yahoo was notified on March 31 of this year as it claims, the company should not have waited another six weeks to let its shareholders know.
