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A general view shows the office buildings of Alibaba (China) Technology Co. Ltd on the outskirts of Hangzhou, Zhejiang province March 16, 2010.

Credit: Reuters/Lang Lang

NEW YORK (Reuters) - Yahoo Inc got short-changed -- that's the view of analysts picking apart the complex deal it announced on Friday with Alibaba Group and SoftBank Corp over Chinese e-payments unit Alipay.

The trio struck an agreement after months of wrangling over the lucrative asset, under which Alibaba gets up to $6 billion if the mobile payments firm goes public or gets sold.

But their solution bothered investors and reinforced perceptions on Wall Street that Yahoo has little control over Alibaba, the e-commerce company founded by Jack Ma and which is 43 percent-owned by Yahoo.

The conflict between the Chinese Internet firm and its two major shareholders started after Alibaba transferred Alipay to a separate company controlled by Ma. Yahoo has said that went on without its knowledge.

Now, under the agreement, Alibaba would receive $2 billion to $6 billion of the proceeds of an Alipay IPO or sale, based on 37.5 percent ownership of the mobile payments service.

That capped the potential amount that Alibaba -- and hence Yahoo or SoftBank -- could receive from the sale of a lucrative company of which it was once the sole owner. It may have represented a compromise over a matter in which Yahoo executives found they had little say.

"This deal just repairs a problem, but the value transfer that occurred gave Yahoo the short end of the stick," said BGC Financial analyst Colin Gillis.

"The key thing here is that they got the deal done," Gillis said. "But it doesn't fix the issue of how Yahoo can take this paper holding in Alibaba Group and turn it into cash on its balance sheet."

The agreement values Alipay between $5.3 billion and $16 billion, according to Jefferies Equity Research.

Shares of Yahoo initially jumped on the deal but reversed course to close about 3 percent lower at $13.10 on Friday, after analysts pressed Yahoo's finance chief on a conference call about its grip on its prized Asian assets.

The months-long fight put additional strain on an already troubled relationship between Alibaba and Yahoo after CEO Carol Bartz was brought in to try to rekindle growth at the once-dominant U.S. Internet player.

WHERE'S BARTZ?

Yahoo's relationship with Alibaba is on the top of investors' minds because the U.S. company's Asian investments are deemed its most valuable asset. Stifel Nicolaus analyst Jordan Rohan said the deal "may have stirred up the emotions of an investor base that has taken a lot of body blows this year."

The lack of details on how Yahoo could access funds from any eventual Alipay IPO or sale, highlighted how Ma and his team called all the shots, and will keep doing so.

"Some fears remain that this could happen again," Rohan said. "The mechanism for Yahoo to extract value from those assets is as murky as it has ever been."

During the public spat between the companies, the hedge fund Greenlight Capital, which is run by investor David Einhorn, dumped its sizable position in Yahoo, and others followed suit.

It was telling that Bartz and Ma, the China-based CEO of Alibaba, were both absent from a conference call with analysts.

Apart from the Alibaba spat, Bartz is dealing with her own issues back home, with Yahoo trying to arrest a continued slide in revenue and reverse a stock decline of more than 21 percent in 2011 alone.

Under the agreement, Alipay will keep providing payment processing to Alibaba's e-commerce platform, Taobao, on "preferential terms."

Much of Alipay's value lies in the payment systems it provides to Taobao, Alibaba's most strategic asset. Alipay will also pay royalties and other fees to Alibaba -- prior to a liquidity event, according to the deal.

Investors had also been hoping for Taobao to go public, which would unlock more value for Yahoo. But Alibaba finance chief Joe Tsai all but ruled that out.

"You should take the Taobao liquidity event assumption off the table," Tsai told analysts on the call.

JP Morgan said the agreement over Alipay was "better than nothing, but not that great." Ultimately, Alibaba, which used to own all of Alipay, has effectively seen its stake reduced, which hurts Yahoo, the investment bank said.

In May, Yahoo claimed it had been blindsided by Alibaba's restructuring of Alipay, an online e-commerce payment akin to eBay Inc's PayPal. Ma took control of the company, which edged Yahoo out of the equation.

Ma had said the move was necessary to comply with Chinese law and to ensure Alipay could continue operating.

Alibaba countered that Yahoo was aware of the transaction by virtue of having a board seat, held by former Yahoo chief executive and director Jerry Yang.

Softbank, another large shareholder in Alibaba group, was also part of the agreement. SoftBank owns 42 percent of Yahoo Japan, while Yahoo owns 35 percent of that company, another one of its most attractive assets.

Shares of Alibaba.com, the listed unit of Alibaba, dipped 0.1 percent in Hong Kong. SoftBank stock fell 3.5 percent on the Tokyo Stock Exchange.

(Additional reporting by Melanie Lee in Shanghai and Franklin Paul in New York; Editing by Edwin Chan, Dave Zimmerman and Matthew Lewis)

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Visitors attend a show by Electronic Arts (EA) at the Gamescom 2009 fair in Cologne August 22, 2009.

Credit: Reuters/Ina FAssbender

NEW YORK (Reuters) - Video game publisher Electronic Arts Inc, reported a narrower-than-expected loss and raised its second-quarter earnings forecast, as it sold more copies of the puzzle game "Portal 2" than expected and pocketed more money on digital games.

The company also said it had it had sold 200,000 pre-orders of its highly anticipated massive multiplayer game, "Star Wars: The Old Republic," since the game became open for reservations last week.

"We're well over 200,000 pre-orders in the first five or six days. From an EA perspective, that is significantly greater than any other EA title we've ever had in the first week," said the company's finance chief, Eric Brown, in an interview.

Investors are awaiting this year's launch of "Star Wars: The Old Republic," an online game that EA hopes will rival Activision Blizzard "World of Warcraft," which has more than 12 million subscribers. EA is said to be spending more than $100 million to develop "Star Wars."

EA has not pinned down an exact date for the game's release but said it would come out during the holiday season.

On Tuesday, EA raised its annual revenue outlook to $3.83 billion to $4.03 billion, slightly higher than the amount Wall Street was expecting.

Part of the revenue boost will come from the acquisition of PopCap games. This month, EA said it would buy the maker of "Bejeweled" in a deal worth up to $1.3 billion. The deal will likely close in August, the company said.

EA, which relies on its sports franchises such as "Madden NFL," may also see a revenue boost now that a National Football League season will be played next year. The company has previously said it would sell 30 percent to 45 percent fewer Madden games if a full football season was missed.

On Tuesday, EA said its adjusted revenue fell 3 percent to $524 million. This beat the average analyst estimate of $511 million.

The company's revenue was lower than last year when it released a World Cup-themed soccer game.

EA's revenue in the quarter was boosted by the sale of digital games, which helped the company beat estimates, said Eric Brown, the company's finance chief, in an interview.

"Because the other areas of our business, specifically digital, were growing so quickly, we were able to come in at revenue that was only down 3 percent overall," Brown said.

EA also sold 2 million units of "Portal 2," a game it distributes for the company Valve. The game features robotic characters and puzzles, and can be played on consoles and on PCs.

EA expects a second-quarter loss of 13 cents to 3 cents per share, roughly in line with analysts' estimates.

Excluding deferred revenue, the company reported a loss of $123 million, or 37 cents per share. Analysts on average were expecting a loss of 39 cents a share, according to Thomson Reuters I/B/E/S.

EA, like many video games companies, is starting to offer a wide range of games played over the Internet and on Facebook, to compete with upstarts such as Zynga, which develops simple, casual games.

The company's digital revenue, which comes partly from games that are played on the Internet, rose 11 percent to $209 million.

EA shares rose 1.4 percent in after-hours trading after closing at $23.81 during the regular Nasdaq session.

(Editing by Robert MacMillan, Gary Hill)

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Netflix subscriber outlook panned

Mon, Jul 25 2011

1 of 2. A Netflix disk envelope is displayed in Encinitas, California, July 25, 2011.

Credit: Reuters/Mike Blake

LOS ANGELES/NEW YORK (Reuters) - Netflix Inc, facing a backlash from customers upset over a price hike, warned its subscriber growth would cool down in the third quarter, and its shares fell 10 percent.

The movie rental company, whose stock is up 850 percent since early 2009, set off alarm bells on Monday when it said customer defections would take a bite out of its subscriber count.

Netflix will essentially end the third quarter with the same number, or only slightly more, subscribers as it had at the end of the second quarter. For investors accustomed to spectacular growth, the forecast represented a bitter pill and made clear that customers are sufficiently upset over a recent change to cancel the service.

Those cancellations will largely offset any new subscriber additions in the third quarter, and pressure financial results. Netflix forecast earnings and revenue for the third quarter that would come up short of current analyst estimates.

And that is on top of a second quarter revenue figure that looked light to analysts.

Netflix "came into the quarter as Superman and it looks like they ran into a little bit of kryptonite and lost some of their super power," said Barton Crockett, an analyst with Lazard Capital Markets.

The company forecast third-quarter revenue of between $780 million to $805 million in the United States compared with an average analyst estimate of $846.5 million, according to Thomson Reuters I/B/E/S. It is expecting global earnings of 72 cents a share to $1.07 a share, which is also below the current analyst estimate of $1.09 a share.

Netflix shares fell about 10 percent to $253 after closing at $281.53 in the regular session on Nasdaq, wrongfooting options traders who were betting that the stock would keep chugging higher, and bringing some welcome relief to short sellers.

"It's too early to call on Netflix's future at this point. I have a 'sell' rating on the company based on its high valuation, but I'm not shorting it because it's still a great company," said Brett Harriss, analyst at Gabelli & Co. "There's just not enough margin of safety to buy it here."

NO FLAWS ALLOWED

Previously, Netflix wowed Wall Street with big subscriber additions quarter after quarter, and investors piled in. The company trades at 61 times this year's earnings estimates, a valuation that brings high investor expectations.

While "the business is still healthy," the company's results must be "flawless to support a stock" at those levels, analyst Crockett said.

Netflix sparked a backlash earlier this month when it announced it was raising prices as much as 60 percent for plans that provide DVD rentals and online streaming of movies and television shows. Thousands of subscribers complained on the Netflix blog and Facebook page with many threatening to cancel their subscriptions.

In a letter to shareholders, Netflix said: "We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we're working hard to further improve the quality and range of our streaming content."

By the end of the third quarter, it estimates it will have about 25 million total U.S. subscribers. That is barely more than the 24.59 million it now has.

The company said it expected customer growth to return in the fourth quarter. With the full impact of the price hike, the fourth quarter also could be "our first billion dollar global revenue quarter, driven by strong U.S. performance," the company said.

For the second quarter, the company's revenue rose 52 percent to $788.6 million, but fell short of the average analyst estimate of $791.5 million, according to Thomson Reuters I/B/E/S.

Second-quarter earnings surpassed expectations in rising to $68 million, or $1.26 a share, from $44 million, or 80 cents a share, in the period a year ago.

(Additional reporting by Yinka Adegoke and Jennifer Saba in New York; Editing by Gary Hill and Carol Bishopric.)

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