This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What's Yahoo! Really Worth Once Alibaba Is Gone?

Stocks in this article: YHOO AOL IACI

NEW YORK (TheStreet) -- There was a great article by Doug MacMillan last week in the Wall Street Journal about how Yahoo! (YHOO) is going to be under increasing pressure after Alibaba goes public later this year.

In the article, there's an interesting graphic that basically outlines of what Yahoo!'s current $34 billion market cap consists. The valuation is important in how the market views the worth of Yahoo!'s core business, which will have an effect on its stock price.

The Journal does an accurate job of categorizing the value of the Alibaba and Yahoo! Japan stakes net of taxes, which Yahoo! would have to pay. This is something that several other articles -- stating the Yahoo! core business currently has a negative value -- have omitted.

According to the article, Yahoo!'s Alibaba stake is worth $22.42 billion, using a $160 billion valuation for Alibaba. Yahoo!'s 35% stake in Yahoo! Japan is worth $5.4 billion net of taxes.

The article then says Yahoo! has $1.71 billion in cash on hand, and so the Yahoo! core business has an implied value of $4.7 billion.

However, I would dispute the Journal's conclusion that Yahoo! has $1.7 billion in net cash on hand. On the last earnings call, Yahoo! reported it had $4.571 billion in "cash and marketable securities." The reason for the discrepancy between Yahoo! and the Journal article is contained in the company's 10-Q.

Yahoo! did report $2.9 billion in "cash and cash equivalents" as well as "short-term marketable securities." It also reported $1.2 billion in convertible notes or debt. Therefore, the net cash reported was $1.71 billion, as the newspaper says. However, Yahoo! also reported $1.631 billion in "long-term marketable securities," which could be 10-year bonds or bonds maturing in 90 days.

Clearly, Yahoo! believes it is quickly and easily monetizeable. The Wall Street Journal is being overly strict, in my view, in not including this additional amount as part of Yahoo!'s net cash.

Coincidentally, NYU Valuation Program Professor Aswath Damodaran published this piece over the weekend in which he agrees the net cash position of Yahoo! is $2.4 billion.

Why does this matter? Because it implies the market believes Yahoo!'s core business is only worth $3 billion, which is roughly the same valuation the market currently is putting on AOL (AOL). This is odd as Yahoo! has triple the annual earnings before interest, taxes, depreciation and amortization of AOL -- $1.5 billion vs. $434 million.

This suggests the market is valuing Yahoo!'s core business's enterprise value as being worth 2x its Ebitda. That's surprisingly low.

AOL currently trades at an enterprise value to Ebitda level of 7x. The industry average for a software company is closer to 12x.

The market is currently valuing IAC/InterActiveCorp (IACI) at about double the value of Yahoo! core even though Yahoo! has more revenues and again about 3x the Ebitda annually.

When the Alibaba IPO happens and Yahoo! has to stand on its own two feet, a lot of talking heads seem to think Yahoo!'s stock will drop. It might turn out that, when forced to look at the true facts, investors will conclude Yahoo! core is trading too cheaply and needs to be revalued upwards.

At the time of publication the author was long YHOO.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

>>Read more: Microsoft Guards Patents With Lawyer Entourage at Nortel Trial

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs