Today: Yahoo (YHOO) hits its highest price in five years as the company's prospects brighten ahead of Alibaba's initial public offering. Also: Dow Jones closes higher than 15,000 for first time and S&P also hits record close, but tech stocks take hit before Electronic Arts (ERTS) earnings.
The lead: Actual optimism for Yahoo amid Microsoft deal, Alibaba IPO
After years of pessimism and derision, Yahoo is suddenly imbued with hope from investors who seemingly abandoned the Sunnyvale Internet company after a failed merger with Microsoft and the rise of Google (GOOG) and Facebook clouded its future.
Yahoo on Tuesday reached its highest closing price on Wall Street since June 11, 2008, the day before dueling statements from Yahoo and Microsoft seemed to kill hopes for even a limited merger. Optimism stemmed from two major disclosures in the company's official quarterly report filing with the Securities and Exchange Commission: An extension of its search deal with Microsoft and the financial performance of Yahoo's Asian holdings.
Microsoft agreed to extend its deal with Yahoo, which guarantees Yahoo specific revenues for every search that takes place on its websites. The partnership of Microsoft's search technology and Yahoo's advertising marketplace -- which began two years after the failed merger, in 2010 -- has not lived up to original expectations, leading many observers to believe that Microsoft would not renew its revenue guarantee after it expired in late March.
The deal is extremely good for Yahoo because the expected revenues will never be reached, Danny Sullivan of SearchEngineLand wrote Tuesday, positing that a Yahoo-Google partnership could be in the making if Microsoft ever does back out of its revenue guarantee. Without the deal, Yahoo Chief Financial Officer Ken Goldman estimated Yahoo would have lost $50 million to $60 million for the rest of 2013, according to The Associated Press.
Yahoo's gains in Asia could mean a much bigger financial windfall than $60 million, however. Tuesday's filing showed that Alibaba -- which Yahoo owns almost a quarter of even after selling a large portion of its ownership -- nearly doubled its revenues last year $1.8 billion and brought in $642 million.
That revenue information, rare for a private company, suggests an initial public offering for Alibaba will arrive very soon, and such solid financials could bring a high valuation and windfall profits for Yahoo, which is expected to sell at least half of its stake in any IPO.
While Bloomberg News reported Monday that Alibaba will likely shoot for a lower valuation than Facebook received to avoid the same downward trajectory that the Menlo Park social-networking company has suffered, prominent Yahoo investor Eric Jackson pointed out Tuesday that Alibaba's financials show greater revenues and profits for Alibaba than Facebook in the most recent quarter.
"If you only look at the revenue difference between (Alibaba and Facebook), you would conclude that Alibaba should be valued at $80 billion. That suggests that Yahoo's 24 percent stake is worth $19.2 billion pretax or $13 billion net," Jackson concluded.
Yahoo is even making currency exchange rates work for it, Bloomberg News reported: Guarding against wild swings in the Japanese Yen has helped the company earn $273 million related to Yahoo Japan. Bloomberg Industries analyst Paul Sweeney praised the moves, calling Yahoo "savvy currency traders."
Investors took note, sending Yahoo up 3.6 percent to $26.07. Yahoo stock has now gained 66.7 percent since Marissa Mayer was named CEO less than 10 months ago.
Mayer had very little to do with the developments outlined in Tuesday's filing, as the Microsoft deal and Alibaba investment took place during the varied regimes that preceded her, but she has focused on pushing the company's future toward mobile apps. In a speech at a Bay Area tech conference Tuesday afternoon, she said her stint at Yahoo so far shows that the company needs "to help users make the transition from desktop to mobile more seamlessly."
SV150 market report: New Dow and S&P records, EA heads higher after earnings
Yahoo was not alone in posting gains Tuesday, as the Dow Jones industrial average broke through the 15,000 level again but managed to stay there through the close for the first time in the blue-chip index's history. The Standard & Poor's 500 also set a record for highest closing price, as Wall Street's record-breaking run continued.
Tech stocks did little to help indexes reach those milestones move along, however: While the Dow rose 0.6 percent and the S&P 0.5 percent on the day, the tech-heavy Nasdaq managed only a 0.1 percent gain and the SV150 declined 0.5 percent.
One Silicon Valley company saw its prospects turn after the bell, however: Electronic Arts' earnings report included a rosy outlook for 2014 that helped push its stock up more than 9 percent in late trading. After the Redwood City company's CEO walked away ahead of some layoffs, EA has managed a bounceback with Tuesday's announcement and Monday's revelation that it will produce "Star Wars" games for Disney after the LucasArts game studio was closed down. After gaining 0.6 percent to $18.41 in regular trading, shares were trading near $20 in after-hours action.
Silicon Valley's other major earnings report led to an opposite reaction from investors: Mountain View security software company Symantec dove in late trading after its earnings report, as numbers that beat estimates couldn't make up for a pessimistic forecast.
In regular trading, some of Silicon Valley's biggest names struggled. Apple's (AAPL) recent resurgence stalled, with shares dropping 0.5 percent despite a vote of confidence from activist investor David Einhorn, and Tesla dropped 6.7 percent after CEO Elon Musk threw cold water on a report from Bloomberg News that he was discussing driverless car technology with Google.
Two entire tech sectors suffered large losses, as companies involved in solar power or manufacturing and selling Wi-Fi products dropped dramatically. After the top United States solar manufacturer, First Solar, failed to impress investors with its earnings report and declined 8.9 percent, San Jose-based rival SunPower (SPWRA) dropped 2.8 percent and San Mateo installer SolarCity plummeted 10.5 percent. Losses were even more severe in the Wi-Fi sector, as Sunnyvale neighbors and rivals Ruckus Wireless and Aruba Networks prompted a big sell-off. After Ruckus released earnings that did not live up to expectations Monday, Aruba announced Tuesday morning that it will also fall far short of forecasts in its report next week. Ruckus dropped 26.2 percent to $14.03, Aruba declined 22.8 percent to $17.02, and fellow Sunnyvale Wi-Fi company Meru Networks dropped 12.2 percent to $4.16. Even San Jose networking giant Cisco Systems (CSCO) felt the sting of Wi-Fi weakness, with its shares dropping 2.1 percent to $21.38.
The SV150 index of Silicon Valley's largest tech companies: Down 6.83, or 0.54 percent, to 1250.44
The tech-heavy Nasdaq composite index: Up 3.66, or 0.11 percent, to 3,396.63
The blue chip Dow Jones industrial average: Up 87.31, or 0.58 percent, to 15,056.2
And the widely watched Standard & Poor's 500 index: Up 8.46, or 0.52 percent, to 1,625.96
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.