Yahoo’s stock is hitting a 52-week high this morning after Greenlight Capital, run by famed hedge fund manager David Einhorn, disclosed a position in the company.Einhorn explained his investment by saying Yahoo’s stake in the Alibaba Group alone is probably worth Yahoo’s current market value.
Prior to Einhorn’s disclosure, chatter was picking up that Yahoo might be willing to sell itself to private equity firms.
Here’s Einhorn’s explanation, via Market Folly:
YHOO currently has $3 per share of net cash on its balance sheet and has approximately another $8 per share of value in its two minority equity stakes of publicly traded companies in Asia (Yahoo Japan and Alibaba.com). Assigning a conservative valuation (5x current year EBITDA) implies $18 per share for just the core businesses and the publicly traded securities and cash. We believe that Yahoo’s most valuable asset is its 40% stake in Alibaba Group’s still-private holdings, which are separate and distinct from its ownership in the publicly-traded Alibaba.com, which we are essentially getting for free. Among Alibaba Group’s privately held Chinese internet assets is a company called Taobao, which is the leading eCommerce website in China. More merchandise was sold on Taobao last year than on eBay, and Taobao’s merchandise sales are growing 100% annually. We would not be surprised if YHOO’s 40% stake in Alibaba Group alone was ultimately worth YHOO’s entire current market value. YHOO stock ended the quarter at $16.68 per share.