Yahoo! (NASDAQ:YHOO) CEO Marissa Mayer has faced constant criticism over the last couple of years as investors continue to wait for revenues to start growing again. Last year, that criticism was muted slightly as the stock price increased 27.58% in 2014. But the stock price has fallen roughly 22% so far this year, erasing much of those gains. These fluctuations are obviously tied to the company’s stake in Alibaba (NYSE:BABA), which Yahoo plans to flip into a separate company during the fourth quarter of this year.

After comments from an IRS official that the agency was considering changes to rules concerning spinoffs, the stock price has continued to trend down. Mayer continues to claim that Yahoo is on track to spin off the stake into a separate company later this year, returning value to shareholders. The completion of this deal will cause the stock price to jump on its own, and speculation that it won’t be carried out is way overblown and unfounded. Along with shutting down non-essential apps and products and growth in the core business translating to actual revenue growth, now is a good time to buy this stock.

Alibaba Stake Outlook

After comments last month from the IRS official, investors seem to be trading as if it is a foregone conclusion that the Alibaba spinoff will not be tax free, costing Yahoo approximately $11 billion. A decrease in the stock price as investors weigh the extra risk is understandable, but the actual sell-off as a result has been an overreaction.

When the IRS official announced that the organization was considering changes to the rules concerning spinoffs, he said that requests that had already been received would move forward. These include Yahoo’s request, which should not be affected by any changes in the future. While there is a possibility that this policy could be reversed, there is no reason to believe that they will.

Mayer has come out and said as much, claiming that any changes will not be applicable to previously filed requests and will only change the process for future transactions. These changes have a much higher chance of affecting the company’s current stake in Yahoo Japan (OTCPK:YAHOY) than its stake in Alibaba.

With a market cap of $36.82 billion, the successful spinoff of Alibaba would almost make owning this stock worth it on its own. This is not even taking into account the stake in Yahoo Japan, the company’s cash holdings, or its core business. The company’s lead attorney, Ron Bell, is working with tax officials to complete the planned spinoff during the fourth quarter of the year, and investors should be taking advantage of the opportunity as others are overly pessimistic about the spin-off taking place during the current year.

Core Business Turnaround

While the stock price is currently trading based off of speculation surrounding the Alibaba spinoff, as well as the stake in Yahoo Japan to a lesser extent, the performance of the core business is still important in the long run. Luckily, the company has been able to use the stake in Alibaba as it struggles to increase revenue growth from its core business.

Yahoo faces intense competition from larger rivals, and its display advertising business has continued to fall since Mayer took over. Last quarter, revenues fell another 4% year-over-year to $1.04 billion, as the company once again missed analysts’ expectations. But results could start turning around this year and set the company up well for the future.

Yahoo’s search market share has increased slightly in recent months after the company became the default browser for the web browser Mozilla Firefox. Its share of the desktop market increased to 12.7%, up from its all time low of 9.8%. Yahoo has now made a deal to attract users installing Java updates, which is found on almost nine out of ten PCs in the United States.

Slightly increasing market share in search will help, but the progress of the MaVeNS businesses are much more important. Yahoo is shutting down some of its older, insignificant apps to decrease costs and focus more attention on these businesses. The cuts will allow the mobile portion of the company to continue making progress as more engineers focus on this field.

Yahoo’s mobile search is drastically better than before, as results are no longer just relevant links. Instead, the search offers solutions for users. For example, if a user searches for a restaurant, linking to different websites relevant to the restaurant is not helpful. Instead, search results now include the location, the menu, hours the restaurant is open, and the restaurant’s phone number.

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Source: SearchEngineLand.com

Mayer has made it clear since she was introduced as CEO that Yahoo was a mobile first company, and these changes reflect that. Last year, $768 million in revenue came from mobile, and this amount should continue to grow at an accelerating pace moving forward. As part of a multiyear transition of the company that began when Mayer took over as CEO, late this year should be when results start turning around, just in time for the tax-free spinoff of Alibaba.

Analyst Opinion

With the Alibaba spinoff taking place later this year despite pessimism from investors, the stock price has plenty of upside potential during the rest of the year for investors. The company’s current P/E ratio is currently just above 5.5. While extremely low for the tech industry, it makes sense considering earnings and revenues have been falling. However, this should turnaround during the second half of the year, making the stock undervalued.

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Source: Yahoo! Finance

Analysts also believe the current price is an attractive opportunity for investors, as they have a consensus recommendation of buy on this stock. According to Yahoo! Finance, the analysts who have initiated coverage of Yahoo’s stock have a mean recommendation of $54.00. This estimated price target offers an upside of 37% to potential investors.

Conclusion

After a great year in 2014 for Yahoo stock, the price has fallen over 20% so far this year. The performance of the core company has not yet turned around, and there is a threat to the tax-free spinoff of the stake in Alibaba. Taking both of these into account, the stock price is still far too low at this time and investors would be wise to buy this stock at the current price. There is no reason to be as pessimistic as investors are about the Alibaba spinoff, as Mayer and Yahoo’s lead counsel work closely with the IRS to make sure the transaction takes place as planned. Further, look for the performance of the company’s core business to turn around just in time, with the MaVeNS businesses continuing to grow while Mayer finishes trimming the fat from the company to make it more efficient. I Know First is bullish on Yahoo for the long-term, with a strong algorithmic forecast to support the bullish fundamental analysis.