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With a reboot, Yahoo is winning converts

CEO, Alibaba stake buoy firm

Marissa Mayer, hired as Yahoo’s chief executive a year ago, has been credited with improving employee morale and halting a slide in the company’s revenues.

Frank Franklin II/Associated Press/file

Marissa Mayer, hired as Yahoo’s chief executive a year ago, has been credited with improving employee morale and halting a slide in the company’s revenues.

SAN FRANCISCO — Not much had been going right for Yahoo until it lured Marissa Mayer away from Google to become its chief executive last summer. The move is shaping up as the best thing to happen to Yahoo since 2005, when it invested $1 billion in what was then a little-known Internet company in China, Alibaba.

Mayer’s magnetism and Alibaba’s prosperity are now combining to transform Yahoo Inc. from a tale of woe into a comeback story that is winning over Silicon Valley and Wall Street.

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People are spending more time on Yahoo’s flagship website. Talented engineers and entrepreneurs are coming to work for the company. Investors are adding its long-languishing stock to their portfolios again. The signs of renewed interest and hope mark a dramatic change from the feelings of hopelessness that had enveloped Yahoo under the direction of six CEOs in the six years leading up to Mayer’s appointment.

Yahoo’s reversal of fortune will be in the spotlight Tuesday when the Sunnyvale, Calif., company releases its second-quarter financial results on the one-year anniversary of Mayer’s surprise hiring from Google. Mayer, 38, had been a top executive who played a key role in Google’s evolution from start-up to powerhouse.

Tuesday’s results aren’t expected to be anything special but that probably won’t matter as long as Mayer can keep convincing people that Yahoo is making steady progress.

Since her arrival, Mayer has orchestrated 17 acquisitions, including a $1.1 billion purchase of Internet blogging service Tumblr, Yahoo’s biggest in a decade. Yahoo’s home page, e-mail, and Flickr photo service have all been redesigned, and a few mobile applications have been upgraded, helping to increase use of the company’s Internet services. And Yahoo’s revenue is increasing, if ever so slightly, after three straight years of decline.

Despite all that, Mayer can’t take much credit for Yahoo’s resurgent stock. Most of the 75 percent increase in the shares has been driven by the rising value of the company’s stake in Alibaba Group, which owns a network of bustling e-commerce and digital payment services in China.

‘‘The performance of Yahoo’s stock under Marissa has virtually nothing to do with what everyone associates with Yahoo — the US operations,’’ Macquarie Capital analyst Ben Schachter said. ‘‘We really haven’t seen a significant change in the operations yet.’’

Mayer wasn’t involved in the initial investment in Alibaba. Shortly after she came on board, however, Yahoo realized a $7.6 billion windfall by selling roughly half of its stake back to the Chinese company. Investors have been pleased with what Mayer has done with the money. She has used most of the after-tax proceeds to buy back Yahoo’s stock, a tactic that has funneled money back to them and boosted the company’s earnings per share.

Yahoo still owns a 24 percent stake in Alibaba. Schachter estimates that could bring in another $20 billion when Yahoo sells the rest of its holdings. Some of the money is expected to come in when Alibaba makes an eagerly anticipated initial public offering of stock, expected by early next year. The rest would come some time after the Chinese company goes public.

That looming jackpot is the main reason that Yahoo’s stock has climbed so much. The run-up has occurred even though Yahoo has still been losing ground to Google and Facebook Inc. in the Internet ad market, which generates most of their revenue. The trend is likely to surface once again in Tuesday’s earnings report.

While Alibaba has boosted Yahoo’s stock in the short term, Mayer is trying to set the stage for a comeback in the long term.

‘‘As I’ve said before, companies with the best talent win, and it’s clear we’re now back in the game,’’ Mayer declared during Yahoo’s most recent earnings conference call in April.

Mayer, who declined interview requests, described her turnaround plan as a ‘‘series of sprints’’ that will take several years to finish. She believes she completed the first phase by improving employee morale and ending the three-year downturn in revenue.

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