Yahoo! Inc. (YHOO): The Best Internet Company for Your Portfolio…It’s Not What You Think!

Recent developments: Tumblr and more

Yahoo! is in the process of acquiring Tumblr for $1.1 billion, which I think could be worth many times that to Yahoo! in the long run. Tumblr is a microblogging platform and social networking site, which has 300 million monthly unique visitors, over half of which connect via mobile devices. Virtually every major tech company has identified that monetizing their mobile offerings is essential to success, but no one has gotten it quite right yet. Yahoo! doesn’t seem to be slowing down their ambitious growth as a result of this acquisition either…multiple sources have been reporting the company to be in talks to acquire Hulu, the online television hub.

The numbers game

While Yahoo! Inc. (NASDAQ:YHOO) trades at about 19.2 times the current fiscal year’s projected earnings, this is not a valid representation of the true value of Yahoo!’s assets. Yahoo! has about $4.2 billion in cash and no debt whatsoever on its balance sheet, and assuming Alibaba prices in the middle of the previously stated range, Yahoo!’s stake would be worth about $21 billion, of which Alibaba has the right to buy back half at whatever the IPO prices for, a right they will undoubtedly execute.

Add to this the 35% stake in Yahoo! Japan, worth about $9.7 billion at the current share price, and Yahoo!’s cash and investments total $34.9 billion (once Alibaba goes public), which translates to $31.69 per share. In other words, the value of Yahoo!’s Asian investments plus cash is more than 17% higher than the current share price.

Once the terms of the Alibaba IPO come out, Yahoo! may be worth the price of admission on that news alone. Additionally, I think their Tumblr acquisition will move the company to the next level in the mobile ad business. Regardless of what happens with their search deal, Yahoo! is certainly on the right track and an absolute bargain at the current price.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article The Best Internet Company for Your Portfolio…It’s Not What You Think! originally appeared on Fool.com and is written by Matthew Frankel.

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