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Investors Value Yahoo's Core Business At Less Than $0
An anonymous reader writes "Yahoo is most known for its search, email, and news services. But its U.S. web presence is only part of its corporate portfolio. It also owns large stakes in Yahoo Japan and Alibaba (a web services company based in China). Yahoo Japan is publicly traded, and Alibaba is heading toward an IPO, so both have a pretty firm valuation. The thing is: when you account for Yahoo's share of each and subtract them from Yahoo's current market cap, you get a negative number. Investors actually value Yahoo's core business at less than nothing. Bloomberg's Matt Levine explains: 'I guess this is fairly obvious, but it leads you to a general theory of the conglomerate discount, which is that a business can be worth less than zero (to shareholders), but a company can't be (to shareholders). ... A fun question is, as fiduciaries for shareholders, should Yahoo's directors split into three separate companies to maximize value? If YJHI and YAHI are worth around $9 billion and $40 billion, and Core Yahoo Inc. is worth around, I don't know, one penny, then just doing some corporate restructuring should create $13 billion in free shareholder value. Why not do that?'"
Has anyone has believed Yahoo! post Mayer's 'strategy' is anything but biding time for the inevitable shutdown or way below cost acquisition?
Everything Yahoo was, namely search, was purchased greedily by microsoft after a relentless and quite aggressive 3 year campaign to make a Bing. that search was then rolled into a search engine that by its very definition could never find itself in the ecosystem of internet websites outside of the mandatory, default configuration in internet explorer. Yahoo is for all intents and purposes a holding company that re-invests what little capital it still maintains into genuinely innovative companies. it sloughs off its patents to the highest bidder and treats its employees with ever growing contempt. Yahoo is not an internet company, its the monopoly man with dog-eared pockets shuffling the streets of internet town. Its designed to return dividends to a select group of core investors through a combination of profiteering and axing the headcount.
Good people go to bed earlier.
The pea is under this shell, are you looking? Okay, watch carefully, the hand is quicker than the eye.. the shells move, they move, they move, keep watching, keep watching. Voila! 13 billion dollars in value were under the third shell. Did you choose right?
Karl Marx called and wants his theory back.
Businesses may in theory work to maximise long term profitability, but in practice they are run by risk-averse humans who have finite lives and finite needs. So the ultimate drive is always to gut, reap, and run.
Namely, don't you value Alibaba based on the size of Yahoo's investment (plus a multiple for future growth), rather than using that investment to gauge how much the investor is worth?
I find it so odd that people keep dismissing yahoo because it is not cool.
1. Yahoo actually makes money.
2. Yahoo has a lot of users.
3. Some services like Yahoo mail are still very popular.
I use Gmail as may main account and outlooks as my professional webmail. I use Yahoo mail as my signup email but that is only just habit for me. Yahoo mail is not bad at all IMHO.
For techies Yahoo is history but for a lot of normal users it is still relevant. I am very techie but I still use my.yahoo page as a start page for me.
See my blog http://ilovecookes.blogspot.com/ for light hearted technical information.
Today, Yahoo is estimated to be worth ~$36.72 Billion
It doesn't own YJHI and YAHI, it owns a percent stake in them. Those stakes are the estimated 9 and 40 billions. So what I believe he is saying is that if they sold those shares, then they would be 13b dollar richer then their current actual market of Yahoo.
9 + 40 = 13? Since when?
Let me explain the math: Yahoo has a market cap of about $40B. Yahoo's stakes in Alibaba and Yahoo-Japan are worth a combined $53B. So the $-13B is the value of Yahoo's core business. If they liquidate or spin off the holdings, that would generate $53B in cash, which could be returned to shareholders. Then, even if the stock price drops to zero (it cannot go lower), $13B in value has been created.
Disclaimer: I am aware that the numbers in the summary and the numbers in TFA don't actually match up.
And this is why we don't call this math... but rather "making shit up" to get money out of people.
All my liberal friends think I'm a conservative, all my conservative friends think I'm a liberal.
I used to work for a biotech company. After we went public our stock did nothing but sink. There was a period of time where our total value was substantially less than our cash in the bank. In other words, a pile of money in the hands of our management was worth less than the same pile of money just sitting on a table. I tended to agree with the market on that one.
There is literally nothing to be gained by splitting the company up except fictional paper valuations.
This is why the question posed by TFS is silly:
A fun question is, as fiduciaries for shareholders, should Yahoo's directors split into three separate companies to maximize value?
As Yahoo's directors, its directors should do whatever aligns with the company's goals. If that goal is "make numbers look happy", then sure, they can do that. If their goal is to (re)build a single strong business, they should keep it together. The common notion that financial "shareholder value" is all-important, or somehow a required priority, is ridiculous.
You do not have a moral or legal right to do absolutely anything you want.
common flaw in greenmailer philosophy... except they only care about the now, and screw the future.
the subsidiary operations that look cash-positive are dependent on services from the core company, and generally share synergies (back-office costs, research, brand value, facilities, yo'momma, whatever) which make them look better on the spreadsheet.
take that away in a breakup, all of a sudden the "haves" are hurting for resources, and need to spend big to replace them. but the experience needed to utilize the resources went with another arm of the octopus.
therefore, (5a): no profit and flounder.
this "unlocking shareholder value" thing is a cloak over the same old pirate uniform.
if this is supposed to be a new economy, how come they still want my old fashioned money?
Brian: Lady, seven bucks for a used Kenny Loggins record? I'll give you five.
Record Store Customer: Ugh-huh, he autographed it himself.
Brian: All right, I'll give you four.
Yes, and this is how the world is ruled at the moment...
they rely don't think there is such a premium.
Or the board members are more interested in keeping their jobs than in representing the interests of the shareholders. Right now, Mayer is considered a genius for doubling Yahoo's stock price. But if she spun off the holdings, it would be much more obvious that the price run-up was due to factors beyond her control, and that the core business, that she does control, has plummeted in value. It is in her interest to keep the merry-go-round spinning.
I am not surprised that the core business has lost value. I used to use several Yahoo services, but now use none. They all got so bad, they were no longer usable. Here are some specific examples:
1. movies.yahoo.com - I used to be able to go to this page, type in my zip-code, and see play times for theaters near my house. Then they changed the algorithm. Now it takes the zip-code, uses it to locate the center of the nearest large city, and shows the play times for the theaters closest to that point. I have no idea why they made this change, or what idiot thought it was a good idea.
2. news.yahoo.com - I had this configured to show news articles that I was interested in. Then they changed the interface so that all my custom configurations are gone, and instead I see articles about Kim Kardasian and Justin Beiber.
3. mail.yahoo.com - The mail interface has always been horrible, but it has worsened. They have always lacked sub-folders, and still do. So I can have a folder for "Friends", but cannot create sub-folders inside for each friend. So I can either have hundreds of folders at the top level, or file semi-related emails together. When Yahoo mail first started, I emailed them and asked about this. They replied that lots of people asked for sub-folders, and it was a "top priority". Now, 15 years and 14 thousand employees later, still no sub-folders. But at least I used to be able to narrow the "Search Mail" feature to a particular folder. That no longer works. It will now search ALL of my mail, mixing the needle I am looking for with plenty of unrelated hay.
Yahoo's directors MUST (not "should") do whatever maximizes profit for shareholders. This isn't an opinion, nor what's socially correct, but those are the rules when you issue shares to the public on U.S. stock markets.
That's wrong in a couple of ways. What's legally required is that the board member put the shareholders interests above their own personal interests (fiduciary responsibility). But those interests are defined by the corporate charter, and to a large extent by the board itself. It's perfectly legal to create a publically traded corporation that sets social responsibility, or green blah blah blah, or some other such hippie nonsense above profit, and then that's what the board must pursue. You might struggle to get investors, or you might find a welcome market, but in any case it's allowed (and rarely happens).
More commonly, there's no requirement at all for the board to chase short term profit. That's where most the corporate infighting comes. Some corporations have firm 20 and 50 year growth plans, and sacrifice the short term for those plans, and sometimes those companies have a shareholder revolt because the owners lose patience and want everything monetized now. Sucks when that happens, but the downside of being a publically traded corporation is that you're ultimately controlled by your owners, and that can end up being anyone.
Socialism: a lie told by totalitarians and believed by fools.