A booth of Taobao.com, the online auction subsidiary of Alibaba Group, at a trade expo. According to the president of the hedge fund Greenlight Capital Inc, there is great value in the private assets of Alibaba, in which Yahoo! Inc owns a significant stake. [Photo/China Daily]

SAN FRANCISCO - Yahoo! Inc shares rose after the hedge fund Greenlight Capital Inc announced that it bought a stake in the Web portal, attracted by Yahoo's investment in China-based Alibaba Group Holding Ltd.

Yahoo's stake in Alibaba ultimately may be worth as much as the company's entire current market value, Greenlight wrote in an April 29 letter to clients.

The company "has taken some increasingly shareholder-friendly steps", Greenlight, which is run by David Einhorn, wrote in the letter. "We believe that Yahoo's most valuable asset is its 40 percent stake in Alibaba Group's still-private holdings."

Greenlight also cited Yahoo's cost-cutting measures in its decision to invest. Chief Executive Officer Carol Bartz, working to turn around the company for more than two years, has shed businesses and eliminated jobs. Yahoo backed away from competing with Google Inc's search business by forging a partnership with Microsoft Corp, saving money and improving cash flow.

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While Yahoo had developed an "anti-shareholder reputation" beginning with its decision in 2008 to decline an acquisition offer from Microsoft, that has changed under Bartz's management, Greenlight said.

Jonathan Gasthalter, a spokesman for Greenlight, declined to comment. Dana Lengkeek, a spokeswoman for Yahoo, didn't respond to a message seeking comment. The Yahoo stake was reported earlier by website Market Folly.

Stock rally

Yahoo has gained 9.1 percent this year. Greenlight bought shares in the Sunnyvale, California-based company at an average price of $16.93, according to the letter. Yahoo has a market capitalization of about $23.6 billion.

First-quarter revenue, excluding sales passed on to partner sites, was $1.06 billion. That topped the average analyst estimate of $1.05 billion, according to data compiled by Bloomberg. Excluding some items, Yahoo had earnings of 19 cents a share, exceeding the average estimate of 16 cents.

The company also showed signs last quarter that its users are more engaged with its sites. Page views on Yahoo's media properties, including the home page, rose 8 percent during the quarter, after declining in previous months. Time spent on those properties rose 17 percent. Still, page views on communications and communities, including Yahoo e-mail and its Groups messaging service, fell 6 percent, and time spent fell 10 percent.

Asian assets

Yahoo is moving to "unlock value" from some of its Asian assets, including its stake in Yahoo Japan Corp, Greenlight said. Yahoo has held talks to dispose of its stake in Yahoo Japan, an Internet portal company, two people familiar with the matter said in March. Yahoo co-owns the Tokyo-based joint venture with Softbank Corp.

Yahoo Japan and Alibaba Group's publicly traded unit, Alibaba.com, make up about $8 a share alone in Yahoo's value, Greenlight said.

Greenlight sees more value in the private assets of Alibaba, including the e-commerce service Taobao.com. Daily orders at Taobao are expected to double to 20 million next year, up from 8 million, Alibaba Chairman Jack Ma said in January.

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