Yahoo Is Tanking Pre-Market (YHOO)

Marissa Mayer

Alibaba sneezes and Yahoo gets a cold. Or something like that.

Alibaba delivered a weaker than expected earnings report, which sent Alibaba shares falling by 6.7% in pre-market trading. 

As a knock-on effect, Yahoo is tanking itself. It's down 5% in pre-market trading. 

Yahoo owns 15% of Alibaba, so it is pretty much just a tracking stock for Alibaba at this point.

This explains, at least in part, why Yahoo is splitting itself up

On Tuesday, Yahoo announced a plan to spin out its 15% stake in Alibaba into a standalone public company. This structure lets Yahoo shareholders get the full benefit of the Alibaba shares without taking an $18 billion tax hit that would have occurred if Yahoo simply sold its stake in Alibaba. 

While splitting off Alibaba is good for Yahoo shareholders, it's also good, in a way, for Yahoo. It means Yahoo will no longer be whipped around based on the performance of Alibaba, which it has no control over. 

Interestingly, though, Yahoo's stock dropped 3% on Wednesday, the day after Yahoo announced the Alibaba spin out. And now, it's poised to drop another 5%. This was supposed to be a moment of triumph for Yahoo. Investors have been demanding Yahoo spin out Alibaba. In the short term, Yahoo is seeing its stock tank.

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