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Yahoo shares a good buy as Alibaba nears IPO: analysts


Marissa Mayer, chief executive officer of Yahoo

Marissa Mayer, chief executive officer of Yahoo

Marissa Mayer, chief executive officer of Yahoo

Alibaba's surprise surge in revenue and its upcoming IPO present a great opportunity for investors to load up on Yahoo Inc's shares, analysts have said.

The Chinese internet company's revenue jumped 66pc in its fourth quarter, dwarfing Yahoo's anemic results earlier this week.

Yahoo's shares, which have jumped 43pc in the past year as chief executive Marissa Mayer pushed ahead with her turnaround plan, were up 7pc at $36.70 in premarket trading on Wednesday.

Yahoo, which owns 24pc of Alibaba, reports the Chinese company's results along with its own numbers but with a three-month lag.

"We continue to recommend aggressive purchase of (Yahoo's) shares ahead of the Alibaba IPO," Topeka Capital Markets analyst Victor Anthony said in a note.

At least nine brokerages raised their target price on Yahoo's shares. Wells Fargo upgraded its rating on the stock to "outperform" from "market perform".

While Yahoo's results show some improvement in its core business, the company could benefit if it is able to liquidate its Alibaba stake in a tax-efficient manner, Wells Fargo analyst Peter Stabler said.

Alibaba is expected to file prospectus for the share sale as early as Monday, according to sources, as it prepares for the largest U.S. IPO since Facebook Inc's 2012 market debut.

Speculation about the valuation of Alibaba has reached a fever pitch, with some brokerages pegging it as high as $190bn. This sets Yahoo up for a huge windfall when it eventually sells its Alibaba stake.

"A strong fourth quarter for Alibaba should reignite IPO valuation optimism," BofA Merrill Lynch said in a note to clients.

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The results also allay fears that had built up after consecutive quarters of slowing revenue growth, UBS Investment Research analyst Eric Sheridan said in a note to clients.

Alibaba's prospective listing is the most highly anticipated of what's expected to be a record year for U.S. tech debuts, spurred by Twitter Inc's successful 2013 IPO.

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