Alibaba IPO could drive Yahoo! shares up again

When the market started to realize that Yahoo!'s (NASDAQ: YHOO) shares in China ecommerce company Alibaba were worth a great deal, the approaching IPO for the Asian company began to move the US portal firm's shares higher. Even after modest earnings, Yahoo! stock is up almost 40% in the last three months.

Alibaba's IPO did well, perhaps even better than expected. The Wall Street Journal says that Alibaba "nearly tripled from its initial public offering price on its Hong Kong debut Tuesday, exceeding market expectations as it shot to levels some analysts warned could be unsustainable."

Alibaba is now worth about $20 billion, and Yahoo!'s share of the company is roughly 40%. The portal company's entire market cap is $42 billion, so its stake in the ecommerce company is a significant contributor to the overall value of Yahoo!.

But there is a problem here. What the shares are worth on paper and what Yahoo! could get for them are two very different things. The shares could not be sold without driving down Alibaba's price. And Yahoo! may think that Alibaba could be helpful in building a better foothold in China for the US company.

The Yahoo! stake may look like it is worth $8 billion, but it isn't.

Douglas A McIntyre is an editor at 247wallst.com.