Stock Of the Day: Yahoo!

Dan Loeb has gone activist on Yahoo! and is pressing them to monetize their non-core assets or sell themselves completely. A long list of activists before Dan Loeb have tried their hand on Yahoo and walked away with steep losses including Carl Icahn and David Einhorn. The difference is that Dan Loeb appears to be successful in wrestling the company away from the board. This has prompted me to take a look at Yahoo.

Yahoo is a classic sum of the parts investment. The bulls on the stock come up with a sum of the parts value in the low 20's. I prefer a more conservative estimate, especially when it comes to these sum of the parts investments and come up with a value of $18. There is decent upside risk to this estimate if all goes right.
Cash: $1.50

+Yahoo Japan: $3

+Alibaba and other Chinese assets: $5.50

+Yahoo operating company: $8

=Total company value: $18

Yahoo! seems well on its way to recognizing this value as Dan Loeb will likely be successful with his board nominations. I believe the biggest risk is the Alibaba assets. I will not mince words. The head of Alibaba, Jack Ma, is a crook. Jack Ma stole or tried to steal the Alipay business from Alibaba. The good news for Yahoo shareholders is that Jack Ma needs Yahoo's portion of Alibaba in order to do an IPO in China. An IPO in China is the way Jack Ma will be able to monetize his ownership of Alibaba.

Ultimately, I don't want to invest in something that requires me to trust a crook, even though it is in Jack Ma's best interest to buy out Yahoo!. Dan Loeb paid around $12 a share for Yahoo!, which means he received the Alibaba assets for free. If I were able to pick up the shares for closer to that price I would be more likely to purchase Yahoo!.




Stock Of The Day Update said...

[...] Why Dan Loeb owns Yahoo! [...]

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