Yahoo has announced a plan to spin-off its 15% stake in China’s Alibaba Group and hand the business to its shareholders.
In creating a separate company that is made up of its stake in Alibaba, Yahoo will avoid a large tax bill.
Yahoo also reported fourth-quarter earnings of $166m (£109m), a 52% decrease from a year earlier.
The company said revenue from display advertising fell by 4% to $532m from a year earlier.
However, investors were cheered by the company’s decision to spin-off its Alibaba stake.
Shares in Yahoo increased by more than 6% in trading after US markets closed.
According to a release, Yahoo’s remaining 384 million shares of Alibaba – worth about $40bn – will be owned by a newly registered company called SpinCo.
SpinCo shares will then be given to existing Yahoo shareholders.
By spinning-off the Alibaba shares into a separate company, Yahoo’s chief executive Marissa Mayer will please investors – but also put renewed focus on her efforts to turn around the company.
Since taking over in 2012, Ms Mayer has led a string of high-profile acquisitions – most notably that of blogging platform Tumblr – but the company has still struggled to find other streams of revenue as its primacy as a search destination declines.
“I’m pleased to report that our performance in Q4 and in 2014 continues to show stability in our core business,” she said in a statement.
“Our mobile strategy and focus has transformed Yahoo and yielded significant results,” she added, noting that the company’s mobile ad revenue was $1.26bn in 2014.
Separately, on Wednesday, a Chinese regulator accused Alibaba of not paying enough attention to illegal businesses conducted on its e-commerce websites and failing to take measures to eliminate issues such as the sale of fake goods.
The report was based on a meeting between Alibaba and government regulators in July before the company’s record breaking share flotation in September.
Last month, Alibaba reported that it spent more than $160m (£103m) fighting fake goods on its websites between the beginning of 2013 and November 2014.