Friday, July 25, 2014

Yahoo's core business is worth less than nothing

You've almost certainly heard of Yahoo, the once-king of the internet that's been semi-resurrected in the public eye under the stewardship of Marissa Mayer. If you're not a business nerd, it's much less likely that you've heard of Alibaba, a major Chinese e-commerce site that combines some of the features of Amazon and eBay for the Chinese market. But Alibaba is headed for an IPO soon and a survey of Wall Street analysts indicates people think it's worth about $168 billion. And Yahoo owns 24 percent of Alibaba.

And before markets opened on the morning of April 17, Yahoo was worth $36.87 billion. Which is to say that when you subtract out the value of Yahoo's stake in Alibaba, the rest of Yahoo is worthless. Indeed, it has negative worth:

Yahoo Now some of this is likely attributable to tax effects. If Yahoo fully liquidated its stake in Alibaba and then tried to dish $40.32 billion out to its shareholders, Uncle Sam would end up taking a healthy cut. But of course Yahoo's core business — like all businesses — is also impacted by tax effects. So this still adds up to a pretty damning indictment of the value of Yahoo's current properties. Add up Tumblr and Flickr and the iOS weather app that I love and all the news sites and the mail and the fantasy sports stuff and it totals up to basically nothing. The company is valuable because it owns a large slice of a Chinese company in an unrelated business.

Update: Matthew Klein ran a similar calculation in March when the numbers were somewhat different. He also added an important point I missed. Yahoo owns 35 percent of Yahoo Japan, which operates as a separate business, and is worth about $26 billion today. So another $9 billion of Yahoo's market cap is attributable to its ownership stake in the Japanese business, which puts "core Yahoo" pretty clearly underwater.

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