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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?'"
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.
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.
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.
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.