We’ve been peeing on Yahoo all the way down, so we hope you won’t take this as us talking our book (unfortunately, we’ve owned the stock forever) or blowing smoke up our employer’s rear (we co-anchor TechTicker). But…
YAHOO’S VALUATION IS NOW RIDICULOUS
The stock just slipped below $12, which means the enterprise value is $14 billion (enterprise value is the value of the business itself, after you net out cash and debt). That’s about 2X trailing revenue, even before assigning any value to the clobbered Asia assets that Yahoo could have sold at the top and didn’t.
Yes, Yahoo should have taken Microsoft’s $31 bid.
Yes, Yahoo’s business is in disarray.
Yes, Yahoo’s search share is headed asymptotically toward zero.
Yes, Yahoo is fat, fat, fat.
Yes, Jerry may have to go.
Yes, Yahoo shareholders have a whole hell of a lot to complain about (don’t we know it).
Yes, the worst case scenario for Yahoo is disintegration into a dead-ringer imitation of AOL.
But come on. That is a worst case scenario. And, unlike AOL, Yahoo doesn’t have to throw its entire business model out the window.
When Yahoo was trading in the high $20s, we were against the idea of tossing out Jerry and the board in favour of, say, Carl Icahn’s buddy Frank Biondi. But with Yahoo at $12, we are confident that just about anyone could blow into town and squeeze out a lot more value. (Including, we would venture to say, us).
Did we mention that Yahoo is obese? Fire a few thousand people, and you’ll generate an incremental $1 billion of cash flow right there.
Sell off those Asia assets and that’s another billion plus. Sell the company’s third-party ad network business (emerging as a big strategic error), sell search to Microsoft or Google, focus the company on what it does really well, and you get a few more billion to work with. And that’s before you get to basic blocking-and-tackling business ops and intelligent R&D spending.
Yahoo has a global audience of 500 million people. It is trading at well below replacement value (spend $15 billion, and you could not build a new Yahoo today–not one with this global reach and brand). Wringing compelling upside out of the stock at $12 is not rocket science. At this price, it’s not even basic arithmetic.
So we say again: Yahoo at $12 is ridiculous.