17 ms·

Alibaba going for a higher selling price just makes the continued undervaluing of Yahoo itself increasingly hilarious. At some point, I would think someone will

by skuhn 12y ago

Alibaba going for a higher selling price just makes the continued undervaluing of Yahoo itself increasingly hilarious. At some point, I would think someone will want to buy them for all of this free money they have sitting around. YHOO market cap : 42.3bn + liabilities : 3.7bn = 46bn (to own outright) Meanwhile: Cash on hand = 1.1bn + Other assets = 15.3bn + Cash from Alibaba sale = 8.3bn + Value of remaining Alibaba stock = 22bn + Value of Yahoo Japan stock = 9bn = 55.7bn (of value, if you can unlock it) So simply by buying them, firing everyone and selling everything in a firesale, without even cashing those checks from advertisers, you can make $9.7bn. Seems like a sweet deal.

jarsin 12y ago
I'm in someone give me a $46Bn loan!
dragonwriter 12y ago
You are kind of assuming that you can have a "firesale" that realizes the full current market value of the $31 billion in Alibaba and Yahoo Japan stock. That's somewhat improbable.
- skuhn 12y ago
  True, this is very naive and presumes you can sell everything for their accounting values without moving the market price or people realizing what you're doing. However, $17bn is a pretty big window of error, and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at.
  - dragonwriter 12y ago
    > However, $17bn is a pretty big window of error Is it? Sell everything else at accounting value and realize a little under half price on the combined Y! Japan and Alibaba stock, and suddenly you are merely breaking even. > and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at. Revenues aren't profits. And Yahoo's net income is all over the map ($1.37B in 2013, $3.95B in 2012, $1.05 in 2011) -- there's no clear trend in the value of running the business, and I think one of the reasons Yahoo stock is so apparently undervalued given a simplistic look at assets and liabilities is the market doesn't really think Yahoo! has much of a roadmap for running the actual business.
    - discardorama 12y ago
      > $3.95B in 2012 That year they sold some $BABA, that's why the revenue was higher.
imaginenore 12y ago
Stock is not cash. You can't sell it at the current value price. You can't even sell 0.1% of it without driving the price to zero. The liquidity is just not that large.
- skuhn 12y ago
  Consider that if I have a bunch of gold bars sitting in a vault somewhere, I don't have to sell them to make money off of them. I can borrow money against their perceived value, currently practically for free. This becomes particularly interesting if I can buy $100 of gold bars for $50. Even if I can't sell them, I can use them to my advantage.
  - imaginenore 12y ago
    Where can you possibly borrow $22 billion with stock as the collateral?
    - theworst 12y ago
      Acquisitions with much of the purchase being done in stock. My understanding is that this is very common.
      - imaginenore 12y ago
        Even if your understanding was true, it still supports my original statement - stock is not cash, and you can't easily get much cash for it on the scale of tens of billions.
        theworst 12y ago
        The first part of your sentence makes it sound like you strongly disagree with my understanding. Can you elaborate? My point wasn't that you can turn stock into cash, but that you can turn stock into some of the same things that large amounts of cash might be used for -- acquisitions.
- 12y ago
ChuckMcM 12y ago
Heh, and people nit picking that you can't get 17B$. Sheesh, lets just sell the crap for 10 cents on the dollar and get $1.7 BILLION in cash for "free". That would make a hell of an entry on the old 1040 proceeds from short term capital gains: 1,700,000,000 I'm sure someone at Goldman Sachs is all over this :-)
- arasmussen 12y ago
  > 1,700,000,000 You missed a few digits there ;)
- deleted 12y ago
  [deleted]
rthomas6 12y ago
So should I buy some Yahoo stock?
- deleted 12y ago
  [deleted]
- baddox 12y ago
  Why would that follow?
  - rthomas6 12y ago
    Because if all shares of the company is valued at X, and the tangible assets of the company are valued at Y, and X < Y, then isn't Yahoo's stock objectively undervalued? I'm not some sophisticated investor, I just buy index funds, but isn't this kind of objective valuation of companies the basis of value investing a-la Warren Buffet?
    - foobarqux 12y ago
      No, the discount is due to the fact that the market believes there is a risk that Mayer will misuse the money. More generally, no, you are not smarter than the market.
      - rthomas6 12y ago
        Never said I was. That's why I buy the index funds. :)
    - baddox 12y ago
      But you can't buy 100 shares of Yahoo! stock then turn 24 of those shares into Alibaba stock. Just because Yahoo! owns a 24% stake in Alibaba doesn't mean your ownership of Yahoo! is fungible with ownership of Alibaba.
curun1r 12y ago
I think you've got a mistake with how you've figured in liabilities. They should be subtracted from assets, not market cap. So, using your numbers, the difference is closer to $10b, not $17b.
- skuhn 12y ago
  You're right, I adjusted the numbers a bit. That leaves $9.7bn of free money laying around, if you can get at it. (minus taxes and discounts on the value, etc.)
  - apercu 12y ago
    Corporations don't pay tax. Sheesh. ;)
  - ricardonunez 12y ago
    You also forgot to include the money you have to pay for the lawsuits you will get for doing it. /j
    - mikeryan 12y ago
      After 9.7B in "profit" those legal bills as significant as they could be would just be a rounding error.
richard_cubano 12y ago
This has been covered ad nauseum elsewhere in the financial press, but you're assuming Yahoo pays zero corporate taxes on its sale of Alibaba shares. That's not how the world works. You need to deduct something like 40% from the value of the "Cash from Alibaba sale" and "Value of remaining Alibaba stock" and probably also "Value of Yahoo Japan stock". My bet is if you do that, you'll come up with a number that makes sense given Yahoo's market price.
- skuhn 12y ago
  Zero chance any real company will pay 40% in taxes on stock sales. They have their ways. http://online.barrons.com/news/articles/SB52133021052493823286804580158543175937742 http://online.barrons.com/news/articles/SB521330210524938232...
- downandout 12y ago
  Capital gains are 20%, not 40%. And these are most assuredly capital gains. On $8b they'll pay $1.6b in taxes.
jonknee 12y ago
There are still a lot of tax questions. Some explanation: http://online.barrons.com/news/articles/SB52133021052493823286804580158543175937742 http://online.barrons.com/news/articles/SB521330210524938232... > Investors now value Yahoo on a sum-of-the-parts basis. The core business could be worth $8 a share and its cash and Yahoo! Japan stake could be worth another $8 a share (assuming a full tax bite on the sale of Yahoo Japan). The 140 million shares of Alibaba to be sold in the IPO should net after taxes around $6 billion, or $6 a share. That totals about $22 a share. > So, Yahoo's share price direction probably hinges on the value of the remaining Alibaba stake—based on the Alibaba share price—and the tax treatment of the likely sale or disposition of that stock. > Bulls argue that Yahoo's shares could trade into the $50 range if Alibaba appreciates sharply after the IPO and Yahoo can find a way to get its remaining stake to holders in a tax-efficient way. This also suggests that Yahoo shares could find support around current levels given the value of that Alibaba stake.
ww520 12y ago
I believe Yahoo the company is still strong but the stock has probably topped out currently. Most of the good news have already factored into the price. I sold all my shares couple days ago, on the basis of selling ahead of a definite news event. It had been a good run-up since got it on the teen's.
rahimnathwani 12y ago
What are the 15bn of 'other assets'? Presumably they're not liquid assets, so you'd need to figure out whether their value on the open market would be anything close to book value.
jimbokun 12y ago
This reminds me of when AAPL was getting close to the value of cash and assets, pre-Jobs return. Was the perfect time to buy AAPL, but of course not clear whether Yahoo has a Jobs at Apple kind of turnaround in them.
- jonny_eh 12y ago
  Until Mayer unveils a product as impressive as the iMac (or iPod), I wouldn't jump on that stock just yet.
  - huherto 12y ago
    true. But it is going to be too late by then.
    - jonny_eh 12y ago
      If you had invested just after Jobs unveiled the iMac and the first iPod, you would have done quite well.
GigabyteCoin 12y ago
But how much would the Yahoo Japan stock really be worth if the world knew somebody was liquidating the entire Yahoo company? I think that's your $9B profit right there.
- wodenokoto 12y ago
  Why would they change? Except for sharing the name and some cross stock holding, they are separate companies. Last I checked, Softbank was the majority stockholder, but I'm guessing that has changed since Yahoo Mobile launched.
downandout 12y ago
No need to fire everyone. Yahoo made $38M net profit on operations last quarter. All they would have to do is maintain their current assets and employees and the owners get $160m/year in free cash. Then, using their effectively unlimited supply of capital in the form of Alibaba stock, they could make some very smart acquisitions (think for example of buying an instagram for $1b cash and growing it to what it is today) and they could pretty quickly be a $100b company. I am not not sure if Marissa is up to the task, but they do have a legion of smart employees and an insane amount of capital. If they fail to build meaningful growth now, it's her fault.
- grinich 12y ago
  Why don't you think Marisa is up to the task? She seems more than capable to me, and has done a remarkable job leading Yahoo so far.
  - downandout 12y ago
    From an IQ perspective, I think she is probably among the top 5 executives in the Valley - likely smarter than Sergey Brin or Larry Page, her former co-workers at Google. She's brilliant. I'm only going by her performance thus far - for whatever reason, most of her acquisitions have been blunders. There are valuable start-ups all around - it doesn't make sense to me that Yahoo can't find them. I realize that there is a negative perception surrounding Yahoo, but money is money and many teams will take the deal if enough is offered. It's also her responsibility to turn that negative perception around by making some smart, successful acquisitions. I would never just write someone with her intellect off - but she does still have something to prove. Hopefully she can do it.
    - mafribe 12y ago
      On the basis of what evidence do you make such grand claims about her intellectual abilities?
      - WalterSear 12y ago
adventured 12y ago
You can't pay face value on an acquisition of a company like Yahoo. Try adding about 25% to 40% as a premium. There went your calculated profit.
TomGullen 12y ago
> Value of remaining Alibaba stock Who'd want to buy stock from a company firing everyone and shutting down?
- WalterSear 12y ago
  Yahoo, not Alibaba.
arbuge 12y ago
The big issue seems to be whether you can trust management not to burn away the cash from Alibaba on unwise acquisitions, initiatives, and so forth. It's a common problem in the stock market when you find stocks selling for less than your analysis of liquidation value. You may be right that at this snapshot in time, that's actually the case. But since you're a minority investor without control, you can't force a liquidation or breakup of the company at your convenience.
samolang 12y ago
If you include a 35% tax on the sale of Alibaba shares, then the values drops to $45.1B. http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-windfall-1411105913 http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-win... http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt-taxes-after-alibaba-ipo/ http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt...
skuhn 12y ago
To briefly follow up now that Alibaba had its first day of trading and shot up in value: YHOO market cap : 41.86bn + liabilities : 3.7bn = 45.56bn (-0.44bn) Cash on hand = 1.1bn + Other assets = 15.3bn + Cash from Alibaba sale = 8.3bn + Value of remaining Alibaba stock = 37.7bn + Value of Yahoo Japan stock = 9bn = 71.4bn (+14.3bn) Now we're at 25.84bn of "free" money. Many, many companies are valued at well above their on-hand cash and assets (sometimes tens or hundreds of times higher), so I continue to think that Yahoo is severely undervalued on paper. If people are so negative about Yahoo that they would rather leave $25bn laying on the ground rather than be associated with them, I think Yahoo has an insurmountable obstacle to future success.
- badamson 12y ago
  Your "other assets" line seems too high....I believe you're double counting their Alibaba & Yahoo Japan stakes...."other assets" s/b $11.3B, no?
  - skuhn 12y ago
    'Total assets' is listed as 16.45mm, which includes 1.1mm in cash and 5.59mm in long term investments. So yes, I suppose if they are counting Alibaba / YJ stock in long term investments (which makes sense), then it is being double counted.

by skuhn 12y ago

jarsin 12y ago

I'm in someone give me a $46Bn loan!

dragonwriter 12y ago

You are kind of assuming that you can have a "firesale" that realizes the full current market value of the $31 billion in Alibaba and Yahoo Japan stock. That's somewhat improbable.

skuhn 12y ago
True, this is very naive and presumes you can sell everything for their accounting values without moving the market price or people realizing what you're doing. However, $17bn is a pretty big window of error, and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at.
- dragonwriter 12y ago
  > However, $17bn is a pretty big window of error Is it? Sell everything else at accounting value and realize a little under half price on the combined Y! Japan and Alibaba stock, and suddenly you are merely breaking even. > and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at. Revenues aren't profits. And Yahoo's net income is all over the map ($1.37B in 2013, $3.95B in 2012, $1.05 in 2011) -- there's no clear trend in the value of running the business, and I think one of the reasons Yahoo stock is so apparently undervalued given a simplistic look at assets and liabilities is the market doesn't really think Yahoo! has much of a roadmap for running the actual business.
  - discardorama 12y ago
    > $3.95B in 2012 That year they sold some $BABA, that's why the revenue was higher.

imaginenore 12y ago

Stock is not cash. You can't sell it at the current value price. You can't even sell 0.1% of it without driving the price to zero. The liquidity is just not that large.

skuhn 12y ago
Consider that if I have a bunch of gold bars sitting in a vault somewhere, I don't have to sell them to make money off of them. I can borrow money against their perceived value, currently practically for free. This becomes particularly interesting if I can buy $100 of gold bars for $50. Even if I can't sell them, I can use them to my advantage.
- imaginenore 12y ago
  Where can you possibly borrow $22 billion with stock as the collateral?
  - theworst 12y ago
    Acquisitions with much of the purchase being done in stock. My understanding is that this is very common.
    - imaginenore 12y ago
      Even if your understanding was true, it still supports my original statement - stock is not cash, and you can't easily get much cash for it on the scale of tens of billions.
      - theworst 12y ago
        The first part of your sentence makes it sound like you strongly disagree with my understanding. Can you elaborate? My point wasn't that you can turn stock into cash, but that you can turn stock into some of the same things that large amounts of cash might be used for -- acquisitions.
12y ago

ChuckMcM 12y ago

Heh, and people nit picking that you can't get 17B$. Sheesh, lets just sell the crap for 10 cents on the dollar and get $1.7 BILLION in cash for "free". That would make a hell of an entry on the old 1040 proceeds from short term capital gains: 1,700,000,000 I'm sure someone at Goldman Sachs is all over this :-)

arasmussen 12y ago
> 1,700,000,000 You missed a few digits there ;)
deleted 12y ago
[deleted]

rthomas6 12y ago

So should I buy some Yahoo stock?

deleted 12y ago
[deleted]
baddox 12y ago
Why would that follow?
- rthomas6 12y ago
  Because if all shares of the company is valued at X, and the tangible assets of the company are valued at Y, and X < Y, then isn't Yahoo's stock objectively undervalued? I'm not some sophisticated investor, I just buy index funds, but isn't this kind of objective valuation of companies the basis of value investing a-la Warren Buffet?
  - foobarqux 12y ago
    No, the discount is due to the fact that the market believes there is a risk that Mayer will misuse the money. More generally, no, you are not smarter than the market.
    - rthomas6 12y ago
      Never said I was. That's why I buy the index funds. :)
  - baddox 12y ago
    But you can't buy 100 shares of Yahoo! stock then turn 24 of those shares into Alibaba stock. Just because Yahoo! owns a 24% stake in Alibaba doesn't mean your ownership of Yahoo! is fungible with ownership of Alibaba.

curun1r 12y ago

I think you've got a mistake with how you've figured in liabilities. They should be subtracted from assets, not market cap. So, using your numbers, the difference is closer to $10b, not $17b.

skuhn 12y ago
You're right, I adjusted the numbers a bit. That leaves $9.7bn of free money laying around, if you can get at it. (minus taxes and discounts on the value, etc.)
- apercu 12y ago
  Corporations don't pay tax. Sheesh. ;)
- ricardonunez 12y ago
  You also forgot to include the money you have to pay for the lawsuits you will get for doing it. /j
  - mikeryan 12y ago
    After 9.7B in "profit" those legal bills as significant as they could be would just be a rounding error.

richard_cubano 12y ago

This has been covered ad nauseum elsewhere in the financial press, but you're assuming Yahoo pays zero corporate taxes on its sale of Alibaba shares. That's not how the world works. You need to deduct something like 40% from the value of the "Cash from Alibaba sale" and "Value of remaining Alibaba stock" and probably also "Value of Yahoo Japan stock". My bet is if you do that, you'll come up with a number that makes sense given Yahoo's market price.

skuhn 12y ago
Zero chance any real company will pay 40% in taxes on stock sales. They have their ways. http://online.barrons.com/news/articles/SB52133021052493823286804580158543175937742 http://online.barrons.com/news/articles/SB521330210524938232...
downandout 12y ago
Capital gains are 20%, not 40%. And these are most assuredly capital gains. On $8b they'll pay $1.6b in taxes.

jonknee 12y ago

There are still a lot of tax questions. Some explanation: http://online.barrons.com/news/articles/SB52133021052493823286804580158543175937742 http://online.barrons.com/news/articles/SB521330210524938232... > Investors now value Yahoo on a sum-of-the-parts basis. The core business could be worth $8 a share and its cash and Yahoo! Japan stake could be worth another $8 a share (assuming a full tax bite on the sale of Yahoo Japan). The 140 million shares of Alibaba to be sold in the IPO should net after taxes around $6 billion, or $6 a share. That totals about $22 a share. > So, Yahoo's share price direction probably hinges on the value of the remaining Alibaba stake—based on the Alibaba share price—and the tax treatment of the likely sale or disposition of that stock. > Bulls argue that Yahoo's shares could trade into the $50 range if Alibaba appreciates sharply after the IPO and Yahoo can find a way to get its remaining stake to holders in a tax-efficient way. This also suggests that Yahoo shares could find support around current levels given the value of that Alibaba stake.

ww520 12y ago

I believe Yahoo the company is still strong but the stock has probably topped out currently. Most of the good news have already factored into the price. I sold all my shares couple days ago, on the basis of selling ahead of a definite news event. It had been a good run-up since got it on the teen's.

rahimnathwani 12y ago

What are the 15bn of 'other assets'? Presumably they're not liquid assets, so you'd need to figure out whether their value on the open market would be anything close to book value.

jimbokun 12y ago

This reminds me of when AAPL was getting close to the value of cash and assets, pre-Jobs return. Was the perfect time to buy AAPL, but of course not clear whether Yahoo has a Jobs at Apple kind of turnaround in them.

jonny_eh 12y ago
Until Mayer unveils a product as impressive as the iMac (or iPod), I wouldn't jump on that stock just yet.
- huherto 12y ago
  true. But it is going to be too late by then.
  - jonny_eh 12y ago
    If you had invested just after Jobs unveiled the iMac and the first iPod, you would have done quite well.

GigabyteCoin 12y ago

But how much would the Yahoo Japan stock really be worth if the world knew somebody was liquidating the entire Yahoo company? I think that's your $9B profit right there.

wodenokoto 12y ago
Why would they change? Except for sharing the name and some cross stock holding, they are separate companies. Last I checked, Softbank was the majority stockholder, but I'm guessing that has changed since Yahoo Mobile launched.

downandout 12y ago

No need to fire everyone. Yahoo made $38M net profit on operations last quarter. All they would have to do is maintain their current assets and employees and the owners get $160m/year in free cash. Then, using their effectively unlimited supply of capital in the form of Alibaba stock, they could make some very smart acquisitions (think for example of buying an instagram for $1b cash and growing it to what it is today) and they could pretty quickly be a $100b company. I am not not sure if Marissa is up to the task, but they do have a legion of smart employees and an insane amount of capital. If they fail to build meaningful growth now, it's her fault.

grinich 12y ago
Why don't you think Marisa is up to the task? She seems more than capable to me, and has done a remarkable job leading Yahoo so far.
- downandout 12y ago
  From an IQ perspective, I think she is probably among the top 5 executives in the Valley - likely smarter than Sergey Brin or Larry Page, her former co-workers at Google. She's brilliant. I'm only going by her performance thus far - for whatever reason, most of her acquisitions have been blunders. There are valuable start-ups all around - it doesn't make sense to me that Yahoo can't find them. I realize that there is a negative perception surrounding Yahoo, but money is money and many teams will take the deal if enough is offered. It's also her responsibility to turn that negative perception around by making some smart, successful acquisitions. I would never just write someone with her intellect off - but she does still have something to prove. Hopefully she can do it.
  - mafribe 12y ago
    On the basis of what evidence do you make such grand claims about her intellectual abilities?
    - WalterSear 12y ago

adventured 12y ago

You can't pay face value on an acquisition of a company like Yahoo. Try adding about 25% to 40% as a premium. There went your calculated profit.

TomGullen 12y ago

> Value of remaining Alibaba stock Who'd want to buy stock from a company firing everyone and shutting down?

WalterSear 12y ago
Yahoo, not Alibaba.

arbuge 12y ago

The big issue seems to be whether you can trust management not to burn away the cash from Alibaba on unwise acquisitions, initiatives, and so forth. It's a common problem in the stock market when you find stocks selling for less than your analysis of liquidation value. You may be right that at this snapshot in time, that's actually the case. But since you're a minority investor without control, you can't force a liquidation or breakup of the company at your convenience.

samolang 12y ago

If you include a 35% tax on the sale of Alibaba shares, then the values drops to $45.1B. http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-windfall-1411105913 http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-win... http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt-taxes-after-alibaba-ipo/ http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt...

skuhn 12y ago

To briefly follow up now that Alibaba had its first day of trading and shot up in value: YHOO market cap : 41.86bn + liabilities : 3.7bn = 45.56bn (-0.44bn) Cash on hand = 1.1bn + Other assets = 15.3bn + Cash from Alibaba sale = 8.3bn + Value of remaining Alibaba stock = 37.7bn + Value of Yahoo Japan stock = 9bn = 71.4bn (+14.3bn) Now we're at 25.84bn of "free" money. Many, many companies are valued at well above their on-hand cash and assets (sometimes tens or hundreds of times higher), so I continue to think that Yahoo is severely undervalued on paper. If people are so negative about Yahoo that they would rather leave $25bn laying on the ground rather than be associated with them, I think Yahoo has an insurmountable obstacle to future success.

badamson 12y ago
Your "other assets" line seems too high....I believe you're double counting their Alibaba & Yahoo Japan stakes...."other assets" s/b $11.3B, no?
- skuhn 12y ago
  'Total assets' is listed as 16.45mm, which includes 1.1mm in cash and 5.59mm in long term investments. So yes, I suppose if they are counting Alibaba / YJ stock in long term investments (which makes sense), then it is being double counted.