When valuing Yahoo (NASDAQ:YHOO), the financial results are irrelevant.
Yahoo, today, is merely a proxy for Alibaba, the Chinese e-commerce company of which it owns 24%.
Yahoo has been reporting Alibaba results with a three-month lag. So this week's Yahoo release for March offered Alibaba numbers for the previous quarter.
Those numbers were impressive. Alibaba had revenues of $3.06 billion for the quarter, up 66% from a year earlier, with earnings of $1.35 billion, up 110% from a year earlier.
As a result, analysts surveyed by Bloomberg suggest Alibaba should be worth $168 billion when it goes public later this year. Alibaba is now preparing its F-1 (F stands for foreign) materials to support an IPO later this year.
Yahoo owns 24% of Alibaba, but has agreed to sell 40% of that stake, or 9.6% of the company, after Alibaba goes public. Alibaba itself is planning to offer a 12% share of itself in the public market, but it may not include its cloud operations or micro-financing business in the public offering.
This makes the math a bit hard. If Yahoo is selling 9.6% of all of Alibaba, it should come in for $16 billion from the IPO. If it's selling 9.6% of something less worthy, it may come up with less. But that's probably $15 billion in cash going against a market valuation of $36.8 billion, with stock then worth another $24 billion still on the books.
As a result, buyers of Yahoo stock at current levels, with its $34 billion market cap, are getting the company for free, assuming the numbers come out as advertised.
While all that sounds great, the fact is that SoftBank (OTCPK:SFTBY), which owns Sprint (NYSE:S), actually has a much larger stake in the Chinese company, 37% of the total. So its share of a $168 billion valuation is $62.16 billion.
Why does this matter to Sprint shareholders? Because SoftBank's plans for Sprint only began with its acquisition of 80% of the company last year. SoftBank also wants to own T-Mobile (NASDAQ:TMUS), a deal regulators have indicated they will reject, and it is now engaged in a vicious price war under which, some analysts say, one or the other company must die.
Sprint won't be the company to die. The Alibaba magic assures it of this. T-Mobile's current valuation of nearly $24 billion may decline in the face of the Sprint threat - it's down 8.5% so far this year - but Sprint can afford to wait.
Sprint is also spending $8 billion/year to boost its network capacity, with plans to spend $6 billion/year more in coming years.
It all sounds crazy, especially with $32 billion in long-term debt already on Sprint's books. Until, that is, you look at its $62 billion in Alibaba shares. Even if those shares are not made part of the public offering, they're still a currency Sprint and SoftBank can use to fund these plans. At its current price, after increasing over 33% since its acquisition by SoftBank, Sprint itself is worth almost $33 billion, and SoftBank's share in that is worth over $26 billion.
The bottom line here is that Sprint, through SoftBank, will have the financial power to push through its capital plans and to destroy T-Mobile's valuation through a price war, then scoop it up.
Once that's done, Sprint will have a much larger network, with more advanced technology and a wider choice of frequencies than either Verizon (NYSE:VZ) or AT&T (NYSE:T). Those companies have long been dividend plays, but once Sprint's capital is deployed, those dividends may be threatened.
So if you're selling Yahoo because its Alibaba stake is fully known and accounted for, consider buying some Sprint with your profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.