So what’s Yahoo! stock really worth? Well, investors are still largely hopeful that the company’s remaining 20% stake in Alibaba will be worth much more than the piece sold off last year. A recent Forbes piece pegs the overall Chinese conglomerate as worth anywhere from $63 billion to $120 billion in a potential late-2013 or 2014 IPO, so let’s go to the midrange, and say it’s worth $90 billion. Yahoo!’s stake would be worth $18 billion then, or over 60% of Yahoo!’s present market cap. Even under a conservative estimate of $65 billion for Alibaba, Yahoo! would still get (according to another Forbes piece ) $8.1 billion on a sale of the whole package. The same tax rate applied to a $90 billion valuation makes Yahoo! $11.2 billion richer.
At the low end, Yahoo! Inc. (NASDAQ:YHOO)’s Alibaba stake leaves $20.6 billion in market cap to account for and, at the higher end, it leaves $17.5 billion. Its Yahoo! Japan stake reduces the unaccounted market cap to a range of $11 billion to $7.9 billion. With $4.2 billion in cash and no debt (let’s back out $1.1 billion for the all-cash Tumblr acquisition, which isn’t yet recorded in Yahoo!’s financials), Yahoo!’s core business is therefore worth somewhere between $7.9 billion and $4.8 billion at its current market cap. That gives Yahoo! a normalized P/E for its core business of somewhere between 7.1 and 4.4, but earnings here are “tainted” by profit generated by Yahoo!’s stake in those other companies, which would no longer be material if Yahoo! sells its stake. Back that amount out of the picture, and operating earnings (about $580 million for the trailing 12 months) give us a core-business P/E range of 13.6 to 8.2. That’s rather inexpensive, but it seems reasonable in light of Yahoo’s difficulty in growing operating earnings over the past few years.
With all this in mind, it seems to me that Yahoo! Inc. (NASDAQ:YHOO) stock is now close to an appropriate value that might suit a company with substantial interests in strong foreign Internet businesses, but a shrinking domestic enterprise. Further growth in Alibaba or Yahoo! Japan might justify a higher share price in Yahoo! stock, but it’s hard to consider either of them undervalued at the moment. I don’t expect Tumblr to be worth much in the long run, and it seems unlikely that Yahoo! will pull off a legitimate acquisitive coup before one of its deeper-pocketed and more-prestigious competitors. The best Yahoo! shareholders can hope for now seems to be further swelling of Alibaba’s already-bloated valuation — which isn’t something I’d be willing to put money on for the long term — and an avoidance of any truly disastrous acquisitions. It may be past the time that Yahoo! itself can regain relevance in a mobile age, since the company’s mobile presence has been all but nonexistent for years.
The article Is Yahoo! Stock Worth More Than the Sum of Its Parts? originally appeared on Fool.com.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft.
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