NEW YORK (TheStreet) -- Yahoo! (YHOO - Get Report) may be one of the most difficult publicly traded companies for an anlyst to assign an accurate valuation. Its market cap is currently about $36 billion, but does that fully reflect its stake in Alibaba?
You wouldn't think so by the way the stock has performed in 2014. For the year to date YHOO, at around $35, is down nearly $11% and down 13.5% from the 52-week high of $41.57.
Yahoo! owns 24% of Alibaba, which will launch its initial public offering in the second half of September. The Web portal will now sell 140 million shares at Alibaba’s market debut, down from an originally planned 208 million. Once Alibaba shares go public I predict the company's market value will quickly soar to between $150 billion and $180 billion.
By the end of September 56% of Yahoo!'s market valuation will be cash, suggesting that its business operations are only worth $16 billion. That seems absurd to me, especially when you look at the company's key financial metrics.With net operating cash flow of over $357 million in its latest quarter, manageable debt, gross profit margin of 83% and trailing 12-month revenue of more than $4.6 billion, it appears shares of Yahoo! are priced too low. So if you want to benefit from the impending Alibaba IPO, the best move you can make it to ask for an allotment from your broker-dealer. Yet, as anyone who has attempted to get IPO shares of a "hot" company knows, your chances are slim to none. So what's the second best way to benefit from the debut of Alibaba? The answer may be Softbank (SFTBY) which owns more than 30% of Alibaba. Softbank also owns 42% of Yahoo! Japan. Yahoo! owns about 35% of Yahoo! Japan, that nation’s biggest Internet portal. When all is said and done, my opinion is investors in the U.S. will experience a better Alibaba payday with Yahoo! than with Softbank. Before explaining, take a look at this one-year price chart of YHOO along with two important financial metrics. YHOO data by YCharts The company's quarterly net income and its year-over-year revenue growth raise some red and orange flags. No wonder shares have been stuck in a narrow trading range during the last five months.