NEW YORK (Reuters) - Shares in Yahoo Inc YHOO.O surged as much as 8.5 percent late in the trading session on Friday on expectations it will benefit from huge demand for a public offering by Chinese e-commerce firm Alibaba.com Ltd.
Internet media company Yahoo is buying 10 percent of the share sale by Alibaba.com Ltd, and already has a 40 percent stake in the company’s parent, Alibaba Group.
Alibaba.com’s initial public offering was expected to price at the top of its range after attracting more than US$180 billion in orders from institutional investors. It is scheduled to price on October 27 and begin trading in Hong Kong on November 6.
“Investors are going gaga for Alibaba, and Yahoo will own around 35 percent of Alibaba once it goes public,” said RBC Capital Markets analyst Jordan Rohan, who rates Yahoo at “outperform” with a $36 price target.
Other news helping Yahoo included an announcement this week that Microsoft Corp (MSFT.O) will invest in Facebook in a deal that values the social network at $15 billion.
“There is some belief that if a tiny little piece of Facebook (makes it) worth $15 billion, Yahoo needs to be worth more than it trades,” Rohan said.
In the options market, Yahoo calls caught on fire as many investors positioned for continued share gains. Yahoo options were one of most actively traded contracts in that market.
In all, 517,788 calls versus 55,642 puts changed hands, nearly five times normal volume, according to market research firm Track Data.
“Yahoo shares are up on anticipation of a very successful Alibaba.com IPO,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. “That will help Yahoo in a big way.”
Yahoo shares rose $2.29 to $33.63 after trading as high as $33.99 during the session.
Reporting by Michele Gershberg and Doris Frankel in Chicago