IRS Questions Yahoo-Alibaba Spinoff As Stocks Slump

It hasn’t been an easy few weeks for Alibaba’s stock, which has suffered some hits in the markets. And yesterday (Sept. 8), things got worse.

Yahoo unveiled its plans back in January to spin off its nearly $40 billion stake in Alibaba, which was a plan that effectively eliminates the need to pay taxes on an investment that Yahoo paid just $1 billion for nearly a decade ago. But the IRS notified Yahoo’s lawyers that that request has been denied, according to a Seeking Alpha report.

“At the same time, the IRS indicated that it had not concluded that the proposed spin-off transaction was taxable and therefore was not ruling adversely on the request … Work proceeds on the pending Aabaco spin-off plan. Yahoo’s Board of Directors will continue to carefully consider the Company’s options, including proceeding with the spin-off transaction on the basis of an opinion of counsel,” Yahoo wrote in the SEC ruling.

Like Alibaba’s stock slump, Yahoo’s stock fell to $29.53 after trading hours. Alibaba was up 0.4 percent in after trading hours after it had fallen 4.7 percent during trading hours.

Alibaba CEO Daniel Zhang is bullish on the company’s resilience, even going so far as issuing an open letter where he said that the company was cushioned by enough cash reserves and plenty of cash flow to keep things under control. The letter was sent out a day after the company’s stock fell below $68 for the first time, which was the company’s IPO price. With a 3.5 percent depreciation, the Chinese eCommerce giant reportedly lost over $5 billion in market value.

“Do not let the fog cloud your vision; broaden your horizons to see the bigger picture,” Zhang wrote in the letter issued Tuesday (Aug. 25). “Forget about the stock price and put your mind at peace.”

Into last week and flowing into this week, however, things haven’t been much easier for Alibaba.

During a Citi conference call yesterday (Sept. 8), Alibaba’s IR Chief Jane Penner provided guidance of the company’s Q2 revenue projections, saying that expectations have been lowered — giving a cautious outlook for the next few months for Alibaba. GMV for the company’s Q1 earnings rose 34 percent, but the Chinese economic slump has hurt the stock since then.

While the stock rallied yesterday morning, by midday it was slumping again. Shortly after 4 p.m. ET, the stock was trading down 4.7 percent. Alibaba’s stock price was $60, which is $8 below its IPO price. Its stock price was trading at $60.93 during post-trading hours.

[bctt tweet=”While Alibaba’s stock rallied yesterday morning, by midday it was slumping yet again.”]

Despite the comments made, Seeking Alpha noted that Citi is backing Alibaba and Penner’s comments, saying that they have been taken out of context by the mainstream media — noting that expectations aren’t off from what the company provided last quarter.

After a much lauded public debut via initial public offering only several months ago, Alibaba is trading at “busted IPO” levels (below the IPO). The company is working to learn how it can grab more money from its customers who are quickly making the switch to eCommerce over mobile devices.

Since last September, Alibaba’s stock had leaped 38 percent on its first trading day and reached its zenith roughly two months later, 75 percent above the debut. The road has been rocky since then, with regulatory disputes, the vagaries of earnings season and the unlocking (and subsequent selling) of large blocks of shares via management. More recently comes the news that Chairman Jack Ma and Vice Chairman Joe Tsai are looking to borrow $2 billion using the stock as a form of collateral. Oh, and there’s also the worries about China’s slowing growth.

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