The market is preparing to be severely disappointed in Marissa Mayer and her Yahoo staff tomorrow, according to Yahoo analyst Victory Anthony from Topeka Capital Markets.
Yahoo reports its earnings after the market close tomorrow.
The main thing shareholders and analysts will be paying attention to is what Yahoo plans to do with its proceeds from Alibaba’s IPO and its remaining stake in the company.
Specifically, people will want to know if Mayer and her team have found a way to divest its stake in a tax-efficient manner.
Most Yahoo investors are sceptical that will happen, says Anthony: “the current share price is pricing in zero tax avoidance.”
Anthony says if Yahoo has been able to find a way to avoid taxes on its upcoming Alibaba, its share price is going to go up tomorrow.
He writes, “Each 10% of tax avoidance on the Alibaba stake will add $US5 per share of value to Yahoo’s share price.”
If Anthony is right that taxes on the Alibaba stake are currently priced into Yahoo shares — and who knows if he is, as that kind of sum-of-the-parts valuation is at least as much art as it is science — then we are surprised by the market’s scepticism about Mayer and her team.
Three reasons why:
- During her last earnings call, Mayer said that the company has hired top tax lawyers to figure all this out.
- We’ve spoken to sources close to large Yahoo shareholders, and they say that Mayer is not sticking her head in the sand and ignoring shareholder demands for her to monetise the Alibaba stake.
- Last week at the World Economic Forum in Davos, where there was a heavy presence from Yahoo management, that Yahoo management is hearing all this scepticism from the market and wondering: Does everything think we’re stupid? We’re working with the top tax lawyers in the world. We’re obsessed with this issue!
We don’t know if Mayer will announce a tax plan tomorrow.
But if Mayer and her team never figure out a way to get monetise at least some of its Alibaba stake in a tax-efficient manner, and figure out a way to return those proceeds to shareholders, there is going to be massive disappointment in her efforts.
Nicholas Carlson is the author of a new book called “Marissa Mayer and the Fight to Save Yahoo!”