Post by The Big Daddy C-Master on Dec 3, 2015 17:06:12 GMT -5
www.investopedia.com/articles/investing/120215/yahoo-worth-19-billion.asp
Amid rumors that Yahoo Inc.'s (YHOO) board might be considering selling parts of the business to stakeholders, Brian Weiser, senior analyst at Pivotal Research, estimates the net worth of the company's core business at $1.9 billion. This estimate includes an assumption of mid-single digit top-line growth (approximately 2%) and stable mid-30s adjusted EBITDA margins post 2016 supported by $1 billion in annual capex and M&A.
The Cons
In Wieser's note, Yahoo's negatives outweigh the positives. According to him, even if Yahoo shows growth in its search business, it will still not be able to match Google's (GOOG) unique value proposition (by virtue of its dominance in the search market) or keep pace with the changes and growth in the search industry.
Yahoo's declining display ad business is also cause for worry. Wieser writes that the display business can be salvaged through addition of video units or good content to attract advertisers. But, Yahoo's advantages are offset by increased competition in video units and poor strategic and executional choices for content. (For more, see: Why Yahoo's Core Business is Negatively Valued.)
The Pros
According to him, the positives for Yahoo are the relatively large user base for email and a diverse audience profile. "As long as both of those factors remain in place, there would be time for an acquirer to establish new strategies and develop products while the property continues to generate cashflow," he writes. "The low absolute price we assign to the business suggests that a sale process would have a high probability of causing core Yahoo! to produce higher value for shareholders than it presently does today."
Earlier estimates of Yahoo's core business have ranged from negative valuations to $5 billion. For example, Cantor Fitzgerald's Youssef Squali, puts the worth of Yahoo's core business at $3.9 billion.
It must be remembered that these estimates are exclusive of Yahoo's cash reserves worth approximately $5.8 billion.
The Bottom Line
The math for spinning out Yahoo's core business is attractive: Yahoo's stake in Alibaba is worth $32 billion and its 35% stake in Yahoo Japan is worth $8.5 billion. Spinning out Alibaba (BABA) could incur significant taxes. Considering that Yahoo's core business is in terminal decline, that might not be such a good idea.
Even if the rumors are not true, it might make sense for Yahoo's board to consider Starboard Value's proposal.
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Amid rumors that Yahoo Inc.'s (YHOO) board might be considering selling parts of the business to stakeholders, Brian Weiser, senior analyst at Pivotal Research, estimates the net worth of the company's core business at $1.9 billion. This estimate includes an assumption of mid-single digit top-line growth (approximately 2%) and stable mid-30s adjusted EBITDA margins post 2016 supported by $1 billion in annual capex and M&A.
The Cons
In Wieser's note, Yahoo's negatives outweigh the positives. According to him, even if Yahoo shows growth in its search business, it will still not be able to match Google's (GOOG) unique value proposition (by virtue of its dominance in the search market) or keep pace with the changes and growth in the search industry.
Yahoo's declining display ad business is also cause for worry. Wieser writes that the display business can be salvaged through addition of video units or good content to attract advertisers. But, Yahoo's advantages are offset by increased competition in video units and poor strategic and executional choices for content. (For more, see: Why Yahoo's Core Business is Negatively Valued.)
The Pros
According to him, the positives for Yahoo are the relatively large user base for email and a diverse audience profile. "As long as both of those factors remain in place, there would be time for an acquirer to establish new strategies and develop products while the property continues to generate cashflow," he writes. "The low absolute price we assign to the business suggests that a sale process would have a high probability of causing core Yahoo! to produce higher value for shareholders than it presently does today."
Earlier estimates of Yahoo's core business have ranged from negative valuations to $5 billion. For example, Cantor Fitzgerald's Youssef Squali, puts the worth of Yahoo's core business at $3.9 billion.
It must be remembered that these estimates are exclusive of Yahoo's cash reserves worth approximately $5.8 billion.
The Bottom Line
The math for spinning out Yahoo's core business is attractive: Yahoo's stake in Alibaba is worth $32 billion and its 35% stake in Yahoo Japan is worth $8.5 billion. Spinning out Alibaba (BABA) could incur significant taxes. Considering that Yahoo's core business is in terminal decline, that might not be such a good idea.
Even if the rumors are not true, it might make sense for Yahoo's board to consider Starboard Value's proposal.
Do You Have Access to Investment Advice?
Everybody deserves access to unbiased investment advice. That's why FutureAdvisor has made their investment algorithms available for public use. You can link your investments to their algorithms and receive a personalized, step by step action plan to help improve your portfolio. Their advice is 100% free - always. Set up your free account today - it only takes 2 minutes to get started.
