Yahoo! Inc. (YHOO) reported 2nd Quarter earnings last night and results were worse than expected. Earnings per share were $0.37, 1 cent worse than analyst expectations. Revenue was $1.04 Billion vs. estimates of $1.09 Billion. The stock is down about 5% from yesterday.

Yahoo was hit by display revenue decline, which was down 7% over the same period last year. An even worse sign: Yahoo has been having to slash ad prices to compete with competitors. Search revenue is up slightly, but still not in line with competitor growth (i.e. Google’s). On a more positive note social and mobile are up nearly 90% year-over-year. Unfortunately, these areas don’t translate to big portions of revenue yet.

While this earnings miss is bad news for Yahoo, it could be a great opportunity for investors. Yahoo made one other big announcement yesterday: it plans to return at least 50% of the cash it obtains from the IPO of Alibaba to shareholders.

In addition to sounding like something from Aladdin, Alibaba is a Chinese e-commerce company. Alibaba is one of the hottest names in Tech currently. For example, Alibaba’s version of eBay features nearly a billion products and is one of the 20 most-visited websites globally. The company is set to IPO (start publicly trading on the stock exchange) on August 8th.

Currently, Yahoo owns about 24% of Alibaba. The company is valued at around $130 Billion according to their IPO filings, and Piper Jaffray even predicts they could be worth $214 Billion. Plus, revenue growth continues to be strong for Alibaba, which saw 39% top line growth last quarter. This all means Yahoo is sitting on a huge potential chunk of change.

Yesterday, Yahoo announced that it had negotiated a deal to keep more of its Alibaba shares, selling 140 million in the IPO vs. the originally agreed upon 208 million. That leaves more money in Yahoo’s pocket and more money for Yahoo shareholders.

I bought 100 shares of Yahoo today because of the chance to get in at a lower share price. I don’t like it as a long term prospect, and will likely only hold through the Alibaba IPO. But, it could be a nice way to get a short term gain from Alibaba’s IPO success.

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