Yahoo!'s China Play Offers No Quick Fix
10/31/07 - 06:06 AM EDT
Vishesh Kumar
Investor enthusiasm surrounding the company's Alibaba stake, which Yahoo! bought for $1 billion in 2005, seems overly optimistic. "We believe investors had been assuming significant upside on the Alibaba deal; therefore the stock has been up 16% over the past week (compared to the S&P 500, which has been up 2.3%)," Thomas Weisel analyst Christa Quarles wrote in a research note on Monday. Thomas Weisel makes a market in Yahoo! shares.
Quarles estimates that Alibaba would add about $1 a share to Yahoo!'s value. But other analysts have speculated that it could be worth far more. American Technology Research analyst Rob Sanderson wrote last week that Alibaba could add between $13 to $15 a share to Yahoo!'s value within four years. That led Sanderson to raise his valuation of the Alibaba stake to $6 a share from $2 a share, and contributed in part to his boosting his price target on Yahoo! to $41. "We believe the Alibaba.com IPO will shine a light on hidden value in Yahoo!'s Chinese investments," Sanderson wrote. Sanderson cites bullish prospects for the Chinese Internet sector in valuing Alibaba so richly. But in looking so far ahead, investors should also be aware that the value of Alibaba could well go below current levels just as easily as it could go up. That's because Chinese Internet stocks are currently trading at record highs, following a big bull run this year.
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