Yahoo plans to spin off its 15% stake in China's Alibaba Group, responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.
Shares of Yahoo rose about 7% last night, following the tax-free spinoff announcement and earnings which just beat analysts forecasts even as its revenues slightly lagged estimates.
The move to spin off the Alibaba stake satisfies a persistent investor demand.
But it could also ratchet up pressure on Yahoo chief executive Marissa Mayer to make quicker progress in strengthening Yahoo's struggling media and advertising business.
Shareholders feel that Yahoo and its stake in Alibaba would be worth more separately, as long as the Alibaba shares are not subject to the standard 35% tax rate that would be incurred from selling the shares.
Yahoo was worth about $45 billion at yesterday's market close. That includes its Alibaba stake of nearly $40 billion, meaning the current Yahoo share price assigns little value to the core business.
Some investors believe the email, website and other operations are worth between $7 billion and $8 billion.
Yahoo, which is trying to reverse a multi-year decline in revenue, has faced increasing investor pressure more than two years after Mayer took the reins to lead a comeback plan.
Activist investor Starboard said in September that it had acquired a significant stake in Yahoo and urged the company to cut costs, consider a merger with AOL and quickly "monetise" the Asian assets.
Mayer promised investors on a conference call on Tuesday that the company's display advertising revenue, which declined 4% in 2014, would return to growth this year.
But the company's forecast for revenue in the first quarter implied continuing softness.
Yahoo said that revenue, excluding fees paid to partner websites in the first quarter, would range from $1.02 billion to $1.06 billion, compared to the $1.09 billion in the year-ago period.
The company said its board of directors has authorised a plan to spin off the stake, tax-free, into a newly formed independent registered investment company.