Yahoo's Biggest Question Is Alibaba But 'Answers Unlikely' On Call, Gene Munster Warns

In a report published Monday, Piper Jaffray analyst Gene Munster commented that Yahoo! Inc. (NASDAQ: YHOO)'s "biggest question" is the acceptance of the Alibaba Group Holding Ltd (NYSE: BABA) tax treatment by the U.S. government.

Munster noted that Yahoo filed last week the necessary documents with the SEC to proceed with the spin-off its remaining 384 million Alibaba shares. The company also disclosed that the proposal has yet to receive the necessary approval from the relevant government agencies.

Munster continued that it is "highly likely" Yahoo's management team will be asked about the spinoff's progress during its post earnings conference call. However, it is "unlikely" that the company will have any significant new news to report on. As such, the analyst suggested that the "core focus" of Yahoo's earnings will surround display revenue growth and "Mavens" (Mobile, Video, native advertising and social) growth and contribution.

Related Link: What The Street Is Saying Ahead Of Yahoo's Earnings

Munster noted that the Street is estimating net display revenue to decline 5 percent year-over-year, an improvement from the 7 percent decline the company reported in the first quarter but matching the 5 percent decline in the fourth quarter of last year. The analyst stated that the company's display business continues to be challenged by the transition to mobile and the move to programmatic versus portal.

On the "Mavens" front, Yahoo reported growth of 58 percent year-over-year in the first quarter and the group represented 29 percent of total revenue. Munster suggested that growth within the category could slow "slightly" in the second quarter, but should grow as a percentage of the total business.

Bottom line, Munster believes that shares of Yahoo is already "largely pricing in" a negative tax outcome from its Alibaba spin. While a negative announcement could result in a "sharp" downward reaction, investors "would likely come back to the stock" after processing the news.

Shares remain Overweight rated with an unchanged $54 price target.