- Verizon has confirmed that it will go ahead and place a bid for Yahoo.
- The presence of multiple bidders, including Google, increases chances of Yahoo getting a favorable offer.
- Yahoo stock appears to have considerable upside even using conservative estimates.
In my past articles covering Yahoo (NASDAQ:YHOO) pending sale, I have said that Yahoo's valuable Internet assets and huge number of users made it highly unlikely that a buyer would not be forthcoming. Verizon (NYSE:VZ) was the first company to hint at an interest in buying Yahoo. Verizon has now confirmed that it will proceed with a bid for Yahoo's core assets Others who have expressed interest include Time, Inc., Comcast -A (NASDAQ:CMCSA), AT&T (NYSE:T) and Microsoft which said that it would be willing to support the successful bidder with $1B. There are reports, however, that AT&T and Comcast won't be pursuing as bid. AT&T bought DirecTV for $48.5B in 2015 so its acquisitive appetite is probably sated for now.
But now interest in Yahoo is coming from unexpected quarters. Alphabet Inc (NASDAQ:GOOG) unit Google has indicated that it's weighing its own bid. News that Google is interested in buying Yahoo's core has come as a surprise to many given that Google has already won the organic search war against the likes of Yahoo and Microsoft (NASDAQ:MSFT), not to mention that a tie-up between the two companies would almost inevitably lead to antitrust concerns. Google is the world leader in the search business with a search engine market share pegged at 67.78%. Microsoft's Bing Search is second with 13.27% market share while Baidu (NASDAQ:BIDU) closes out the last of the top-three spots with 8.86% share. Yahoo is fourth with 8.14% search engine market share.
Yahoo is proving to be an attractive buyout target for Verizon due to a number of reasons, but perhaps the biggest is that Verizon is interested in Yahoo's video assets. Verizon has already staked its future in mobile and video in a bid to keep a hold on fickle millennials who no longer find watching TV cool and instead prefer to watch videos on their mobile phones. Yahoo has been investing heavily in video under Marissa Mayer's tenure, and its Mavens unit is one of the few bright spots in the company after recording revenue growth of 26% Y/Y during the last quarter. Yahoo's BrightRoll video-ad unit would fit well with Verizon's go90 video platform.
Verizon has about 105M subscribers. The company also bought AOL in 2015. AOL has 2B users, and adding up Yahoo's users to that would create invaluable web traffic for Verizon.
Google is probably interested in Yahoo for the same reason Verizon is: its huge number of users. With the platform attracting more than 1B MAUs, Yahoo still has its attractions. Some of Yahoo sites such as Tumblr, Yahoo Weather, and Yahoo Sports are still posting MAU growth.
Yahoo is reportedly asking for $10B for its core business. Meanwhile, Verizon is only willing to offer slightly less than $8B. Verizon, however, could be willing to buy Yahoo Japan. If Google makes a bid, there is a better chance that Yahoo will get something close to the $10B it wants. If Microsoft make's good its promise to provide support to the tune of $1B, then Yahoo's sale is likely to happen sooner rather than later.
So the pressing question is what is Yahoo's fair price? If we value Yahoo's core at $8B, assume Verizon will agree to buy Yahoo Japan, and Alibaba's spinoff will be fully taxed, then Yahoo's fair price would be around $45, or about 23% upside to current price. Meanwhile Barron's reckons Yahoo is trading at a big discount given that its NAV, or Net Asset Value is around $51/share and says the shares could potentially make 20% or more using conservative estimates. Yahoo investors could end up getting substantially more if a real bidding war ensues between Verizon and Google, and Yahoo ends up getting $10B. Sale of the company's non-core assets could push that even higher. Meanwhile Yahoo has extended the bidding deadline to April 18 from April 11. Investors can only hope that the first round of bids are encouraging.