2015-12-04

Yahoo $YHOO: What's It Worth Without Alibaba and Yahoo Japan? (video)


Yahoo Drama Explained - One of the oldest and most well-known online companies, Yahoo [yahoo.com], may be putting its core business up for sale. The WSJ's Rick Carew explains why in the video above (published 2 Dec 2015).

"Yahoo’s Core Business EBITDA has been decreasing at an alarming rate. In fact, in Q1 and Q2 of 2015, Yahoo’s Core Business became free cash flow negative. Additionally, on a year-over-year basis, the magnitude of the decline keeps continuing and accelerating without benefit of lapping or stabilizing. This should be enormously alarming for management and the Board." --Letter (pdf) from activist shareholder Starboard Value LP to Yahoo Board of Directors, August 10, 2015.

Yahoo 5-year stock chart ($YHOO) as of 3 Dec 2015
Above: Yahoo 5-year stock chart ($YHOO) as of 3 Dec 2015 (source: google.com)
Yahoo's 15% stake in Alibaba is now worth about $32 billion, and its 35% stake in Yahoo Japan is worth about $8.5 billion. Meanwhile, Yahoo's core internet business has faced competitive pressures and unfavorable industry trends--shift to programmatic, shift to mobile. The Wall Street Journal has reported the Yahoo Board is considering not spinning off, as previously announced, its stakes in Alibaba and Yahoo Japan, but instead, selling Yahoo's core internet business. So what's the value of Yahoo without Yahoo’s stakes in Yahoo Japan and China's Alibaba Group Holding Ltd. $BABA? The Wall Street Journal asked several analysts:

Citigroup analyst Mark May: Yahoo’s core internet businesses could be valued at roughly five to six times its forward earnings before interest, taxes, depreciation and amortization. At that multiple, the enterprise value of the Internet businesses could fall between $3.4 billion and $4.1 billion. Investors are currently valuing it at 2.5 times forward EBITDA, giving an enterprise value of $1.7 billion.

Cantor Fitzgerald analyst Youssef Squali: A multiple of 4X EBITDA because of the core business maturity and more limited growth potential which values the businesses at about $3.9 billion, or $4.12 per share. Among Yahoo’s core internet assets, only the search business is profitable.




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