Why I Love Yahoo!

NEW YORK (TheStreet) -- I have had a love-hate relationship with Yahoo!(YHOO) for five years now. I have always thought the stock was undervalued and primed for a turnaround that could unlock value. That's why I longed the stock and led an activist campaign against it. Unfortunately, even though the campaign resulted in former CEO Terry Semel quitting in 2007, the company's board muffed the chance to sign a deal with Microsoft(MSFT) leading to the company's stock price to collapse. It's really never recovered.

Yahoo!'s new CEO is into her third year at the helm of the Internet company. Most investors and analysts are fixated on her efforts to turn the business around. When you listen to the earnings calls, 95% of the discussion from Carol Bartz and her CFO, Tim Morse, focuses on the wholly-owned business.

Yet, despite the company finally biting the bullet and doing needed layoffs and closing underperforming or overlapping businesses -- things that have been obvious to many for years -- my interest in Yahoo! is purely based on its private stake in Alibaba Group, the parent company of Alibaba.com, Taobao and Alipay.

There has been some general talk among investors who don't follow Yahoo! closely that Yahoo! should "monetize" the Asian assets. By this, I think they are suggesting that Yahoo! divest its stake in Yahoo! Japan and Alibaba Group. There also seems to be a lot of hope that private equity will come in and buy the wholly-owned company. Remember the spike-up in shares we saw a few months ago when rumors circulated that AOL(AOL) was going to team up with private equity to make a bid for Yahoo!?

To me, all the private equity talk and concern about the current or future health of the Yahoo! core business is a side-show. I believe most of Yahoo!'s largest shareholders believe -- as I do -- that the real value-creation in Yahoo! shares will come when the market sees how big Taobao and Alipay are going to be in the next 10 years.

Let's do a sum-of-the-parts on Yahoo!

Tim Morse discussed last week that they are looking into a tax-free spin-off of their Yahoo! Japan stake. At recent market prices, Yahoo!'s 35% stake in Yahoo! Japan is worth $5.76 per share.