E Intrinsic Value Of Yahoo
Alibaba has started trading at around $91 and Yahoo started trading down at around $41. Being a 22% share holder of Alibaba, Yahoo is supposed to get all of the benefits of Alibaba ownership. Why is the market trading Yahoo downwards? How much is Yahoo truly worth after the Alibaba IPO?
Yahoo owns 523 million shares, or 22.4%, of Alibaba. At $90, Yahoo’s ownership is worth $47 billion; after paying a whopping 35% tax, it would be valued at $30.5 billion. Yahoo owns 35% of Yahoo Japan and at current market value its worth is $7.7 billion; again after paying 35% tax it's worth $5 billion. Yahoo has $2.74 billion cash on its balance sheet; for the past twelve months Yahoo made $1.26 billion on earnings. At twelve times past earnings Yahoo's estimated value is $14.7 billion.
If we sum all of the parts, Yahoo's value is way over the current trading price.
Again this is a conservative approach on Yahoo's valuation. Yahoo can play its Alibaba stake in a tax efficient way, such as spinning its Alibaba stake into a different entity and allocating new entity shares to shareholders. Yahoo's brand is worth a lot more. If someone wants to purchase Yahoo in its entirety, shareholders would demand a much higher price than it is now. Let’s say you want to ignore earnings metrics, and adopt a conservative 8 times trailing EBITDA ($1.28 * 8) which is $10.24 billion, putting Yahoo's fair value at $44.40. Also every dollar change in Alibaba is worth $0.34 for Yahoo on an after tax basis.