Yahoo Valuation Post Alibaba IPO Filing!

  • Alibaba valuation of $109 billion as per IPO filing seems to be conservative.
  • Yahoo Japan has lost a third of its market cap since March 2014.
  • Yahoo still has significant upside after a conservative sum of parts valuation.
Yahoo Has Upside Post The Alibaba IPO Filing

Yahoo (NASDAQ:YHOO) valuation is derived largely from its holdings in Alibaba and Yahoo Japan, and to some extent from its own business. We had valued Yahoo stock using the sum of parts method in March 2014. Since then, Alibaba has made its much anticipated IPO filing in the US, and Yahoo Japan has lost a third of its market cap. So, it’s time we re-assessed Yahoo’s worth to figure out if the Yahoo stock, at $34.4 a share, is worth more or less than its current price.

First things first, let’s look at how things have shaped with the Chinese e-commerce giant, in wake of its upcoming IPO by looking at Alibaba pre-IPO fundamentals. After all, that’s what everyone is excited about right now.

Alibaba’s Contribution To Yahoo Stock Price

Alibaba’s IPO filing was received with a 6.6% fall in Yahoo stock price on the day the announcement was made. Alibaba’s IPO filing indicates that the company has valued itself at $109 billion. (Ref: MarketWatch)

Earlier to the filing, estimates of Alibaba’s IPO valuation ranged largely from $120-200 billion, with some estimates going all the way up to $240-250 billion.

One must note that the figure of $109 billion is not a final figure, and that Alibaba could end up being valued higher, which we think will be the case eventually. However, let’s take that to be the worst case scenario, while making allowances for some upside.

As per the IPO filing, Yahoo’s stake in Alibaba stands at 22.6%, taking diluted number of shares.


Worst Case

Our Expectation

IPO Valuation ($ billion)



Value of 22.6% stake ($ billion)



Value of Mandatory Sale of Stake ($ billion)



Post Tax Value of Stake Sale* ($ billion)



*Tax @ 35%

Value of Residual Stake ($ billion)



Total Value of Stake At IPO ($ billion)



Value Per Yahoo Share (1.01 billion shares)



So, in a worst case scenario, Yahoo’s stake in Alibaba is valued at $21 a share. Do note that we’ve assumed there to be tax implications only on the shares that Yahoo has to sell for sure.

Yahoo Japan’s Contribution To Yahoo Valuation

Moving on to the next big chunk of Yahoo’s value, Yahoo Japan, in which Yahoo has a 35% stake, has lost a third of its market cap since our previous coverage.

The company is listed in Tokyo stock exchange. Its Market Cap is 2.47 trillion Yen. Using a conversion rate of 102.16 Yen per USD, that translates to $24.17 billion.

Yahoo’s stake in Yahoo Japan is valued at $8.46 billion or $8.37 a share.

Yahoo Valuation

As we had mentioned in our previous valuation of Yahoo, valuing this company on the basis of a Price/Earnings multiple would skew the equation because Yahoo’s earnings include contributions from Alibaba and Yahoo Japan. A Price/Sales multiple would be better for suited for relative valuation.

However, P/S multiples for most of its competitors like Facebook, Google, etc factor in healthy growth rates. Given that Yahoo’s revenue has been on the decline, the closest comparable is AOL. In spite of the fact that the latest quarter for AOL saw reasonable growth, the company is the closest comparable.

Using AOL’s P/S multiple, Yahoo is valued at $5.86 a share.

The valuation is quite conservative given that the company has about $3 billion in cash and equivalents, net of debt, and could turn around under the leadership of CEO Marissa Mayer. Yahoo has already seen an improvement in user growth, though the same hasn't translated to revenue as yet. However, it must be noted that Yahoo is still one of the most visited sites in the US.

Total Value Of Yahoo Stock

We think Alibaba’s valuation is likely to end up at around $150 billion. However, we’ve assumed a valuation of $109 billion to be the worst case scenario.

Worst Case

Our Expectation




Yahoo Japan









Upside from Current Price of $34.4 a share



In spite of the latest developments that might have dragged down Yahoo’s valuation vs our previous coverage of the same, we still think there’s a significant upside here. Yahoo Japan’s intrinsic value could be way higher than its current market cap reflects.

However, to eliminate the element of speculation on whether the stock price will catch up, we’ve just taken into consideration its current market cap and assumed that it’s fairly priced. The same goes for Yahoo’s individual valuation as well. We’re probably being conservative, but that’s not always a terrible thing.

A detailed article by Aswath Damodaran also estimates the value of Alibaba to be around $150 million.

If one is very pessimistic there’s still a thin upside. However, as we mentioned earlier in our Yahoo stock analysis, we think there’s a good upside potential to Yahoo, the way we see it.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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