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With Quarter Expected Weak, How Much Longer Can Alibaba Be Yahoo's Golden Ticket?

And can CEO Marissa Mayer keep making hay from other's work?

Let’s be clear, Yahoo’s quarter is going to be ugly again — with declining revenue and flat earnings expected from the Silicon Valley Internet giant. This has happened quarter after quarter under the regime of CEO Marissa Mayer, who has been unable to turn around the lackluster online advertising business or innovate herself out of the downward growth spiral.

Thank God again, then, for Alibaba Group, which has kept Yahoo’s shares robust despite the lack of core performance. But there might not be that same pop from the Chinese Internet giant for Yahoo stock from the report today, given the rest of it is so depressing.

That’s because there will not be new information about Alibaba’s business in the Yahoo report; it has already revealed those figures in its IPO filings with regulators.

Alibaba is about to go public in August, giving Yahoo a windfall of cash because it has to sell part of its substantial stake into the offering.

That will give Mayer billions of dollars to do something with, other than being what is essentially an Asian investment company.

Ironically, it still wants to be one, with sources saying that CFO Ken Goldman and Mayer have continued to aggressively press Alibaba for the right to sell less than the 10 percent it is obligated to.

If that were to happen, it would keep the Alibaba shine on Yahoo’s otherwise dim outlook.

As I previously reported, there is a scenario in which Yahoo could hold onto some of the hundreds of millions of shares it has agreed to sell into the offering.

The catch: Only if Alibaba execs allow it.

As I noted:

There is a small loophole in the original agreement, made in May of 2012, in which increasing tensions between Yahoo and Alibaba were lanced. It noted then that Yahoo had to sell shares, but only at the “election” of Alibaba.

Election meaning: Alibaba’s choice.

In the 2012 deal, Yahoo agreed to part with 261.5 million shares out of 523.6 million shares, “either back to Alibaba concurrently with the completion of the Qualified IPO, or will sell 261.5 million Shares directly to IPO purchasers as part of the Qualified IPO.”

At the time, Alibaba also bought back 20 percent of Yahoo’s stake for more than $7 billion in cash and preferred stock. Previous Yahoo execs, including co-founder Jerry Yang, had bought just over a 40 percent stake of the Hangzhou-based Alibaba in 2005 for $1 billion, which now looks like the greatest trade of the last century.

But in October of 2013, under new CEO Marissa Mayer, Yahoo and Alibaba amended the agreement that reduced the “maximum number of shares of Alibaba Group that Yahoo is required to sell in connection with a qualified initial public offering of Alibaba, from 261.5M shares to 208M shares.”

In that change, Alibaba very much did Yahoo a solid, with its leaders mentioning how important it was to get along with one of its bigger shareholders.

“Under its new leadership, Yahoo has made it a priority to build a good relationship with Alibaba,” said top Alibaba exec and board member Joe Tsai. “We look forward to working with Yahoo as a supportive shareholder and partner to expand our business for future growth.”

According to sources, that is the one hope that Yahoo has to get Alibaba to force it to sell less — it is a better and more stable investor than some tetchy hedge fund or irritating institutional investor.

We’ll see if — as I previously said — Alibaba throws Yahoo a solid in the weeks ahead. If not, Mayer will be facing a lot less breathing room as investors look for her to fix what really ails Yahoo.

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