Yahoo Profit Is a Footnote to Alibaba’s Huge Gains

SAN FRANCISCO — Investors were already salivating over the initial stock offering of Alibaba Group, the giant Chinese e-commerce company. On Tuesday, they got a glimpse of Alibaba’s tremendous growth that is sure to whet their appetite even more.

Alibaba made $1.4 billion in profit for its fourth quarter, more than double the amount it made during the same period a year earlier. Revenue jumped 66 percent, to nearly $3.1 billion.

The peek inside the private Chinese company came courtesy of Yahoo, which owns 24 percent of Alibaba and must disclose some of its financial data as part of its own quarterly reports. But Alibaba will soon provide much more information about its business, which dominates consumer online commerce in China in a way that Amazon and eBay could only dream of in the United States. It plans to file paperwork as early as next week for an initial public offering of stock on an American exchange.

The sale could be the largest I.P.O. in American history if the company’s valuation reaches $200 billion, which some of the most optimistic analysts are suggesting. The offering is not expected to occur for at least a couple of months after the filing.

For years, the only way to buy a piece of Alibaba’s growth story has been to buy Yahoo stock, which investors were snapping up on Tuesday. Yahoo’s shares rose to $36.50, up 6.7 percent, in after-hours trading after it released the Alibaba numbers along with its own results.

Yahoo, which was reporting its first-quarter results, said that revenue and profit growth were flat, a slight improvement from previous quarters. However, from the perspective of investors, those figures were basically a footnote to the Internet portal’s investments in Alibaba and Yahoo Japan.

“You can be a relative optimist like me about the core business and attribute $7 or $8 to it,” said Brian Wieser, an analyst with Pivotal Research. “But you can make an argument that the entirety of the value is Alibaba.”

Despite turnaround efforts by its chief executive, Marissa Mayer, who was appointed nearly two years ago, Yahoo has continued to report lackluster financial results for its main business, which is selling search and display advertising to brands eager to reach visitors to the company’s sports, news, mail and other content pages.

Ms. Mayer initially focused on creating new products and regaining lost user traffic, but largely ignored advertising, the company’s principal source of revenue.

She has vowed to make advertising a priority this year, however, and the company showed some modest progress on that front in the first quarter. Revenue from display advertising grew 2 percent from the year-ago quarter, halting a long downward slide. Search ad revenue grew 9 percent.

But in the hottest areas of Internet advertising — mobile, video and in-stream ads — Yahoo’s efforts so far are still nascent. “They are not material to our overall results,” Ms. Mayer said.

Still, the stock has more than doubled since she was named to the job in July 2012, a rise that has been tempered only slightly in recent weeks as investors have widely pulled back from Internet stocks.

Most analysts attribute those gains to Alibaba’s sizzling performance.

Under terms of its investment agreement with the Chinese company, Yahoo must sell about 40 percent of its stake if Alibaba goes public.

Depending on the valuation of Alibaba, which many analysts predict could range from $100 billion to $200 billion, Yahoo would reap at least $10 billion before taxes.

Alibaba’s fourth-quarter results might push the valuation toward the higher end of the range.

Some on Wall Street had worried that its enormous growth had begun to slow when it reported only a 51 percent gain in third-quarter revenue compared with figures in the period a year earlier. But Alibaba’s fourth-quarter earnings were helped by a few big shopping days, particularly Nov. 11 — known as Singles Day, China’s twist on Valentine’s Day and one of the busiest days for online shopping. Alibaba disclosed last year that its two main e-commerce platforms, Taobao and Tmall, sold roughly $5.75 billion worth of merchandise on Singles Day last year, an 80 percent gain from 2012.

“These were pretty spectacular results, and they should assuage any fears around a slowdown,” said Ben Schachter, an analyst at Macquarie Securities who says he expects Alibaba’s valuation to be at least $160 billion. “It’s a reminder of what kind of growth story this is.”

That growth has offered Ms. Mayer some necessary cover for her turnaround project, which remains a work in progress.

For the first quarter, Yahoo reported net income of $312 million, or 29 cents a share, on revenue of $1.13 billion. In the same quarter a year ago, it reported net income of $390 million, or 35 cents a share, on $1.14 billion in revenue.

Excluding one-time items and expenses for stock compensation, the company reported a profit of 38 cents a share in the first quarter, the same as a year ago. That essentially matched analysts’ expectations for 37 cents a share in profits on revenue of $1.08 billion.

Eventually, though, Yahoo’s core business will matter to investors once again. To return the company to its former heights, Ms. Mayer has begun a series of initiatives to rebuild the company’s advertising business.

In January, the company revamped its technology and food sites, abandoning Yahoo’s traditional hodgepodge of text and links in favor of large, visually rich panels reminiscent of magazines. Ms. Mayer is expected to announce similar digital magazines in categories like travel, entertainment and beauty in the coming weeks.

Yahoo is also trying to become a bigger player in online video, developing new shows for its digital magazines and talking to Hollywood about original entertainment content.

Advertisers welcome that spirit of experimentation, said Bob Rupczynski, vice president for media, data and customer relationship management at Kraft Foods Group.

In March, Kraft Singles cheese was the first brand to use Yahoo’s new motion ad format, in which the image in the ad appears to be moving. When Yahoo users went to their login page, they saw an image of a grilled-cheese sandwich with steam wafting from it.

Mr. Rupczynski said that the motion helped the ad stand out, and that Kraft intended to try other new Yahoo ad formats, such as sponsored articles on Yahoo Food. “We’re excited about the platforms we’re testing out with them,” he said.