Yahoo! Will Hit $50 Before You Can Say Alibaba.com

I’m going to be the first on the street to call Yahoo (YHOO) $50!

That’s right I’m putting a $50 price tag on Yahoo, not because I think they’re a great company and not because I think they have anything on the ball but because they are good investors.

Yahoo owns 39% of a Chinese company called the Alibaba Group, which is a holding company for various Chinese Internet stocks (Softbank owns 29% too). The Alibaba Group is doing an IPO for Alibaba.com, an Amazon-type site for business and personal shopping, which is ONE of it’s subsidiaries and it looks like they raised $1.5 billion for a 17% stake in the company. Yahoo paid $1 billion in 2005 for their 40% stake in the company so this subsidiary alone should be worth $3.6 billion to Yahoo.

Alibaba Group also owns an Ebay-like auction site called Taobao (don’t you just love the common sound rip offs?) and AliPay, a pay-pal clone as well as Yahoo China, Alisoft (software), Alimama (marketplace) and Koubei.com, a Craig’s list-type service. All these businesses are in the world’s fastest growing country, in the world’s hottest stock market and analysts way undershot the value of Yahoo’s stake. Alibaba fetched closer to $1.50 a share for 850 million shares ($1.5 billion) than the $1.10 a share figure that was being used but even that is irrelevant as Yahoo still holds 1/3 of the remaining shares (about 2 billion) through the holding company. Assuming this is a typical Chinese IPO, those 2 billion shares should be worth $5 billion within a week - and this IPO has more buzz than almost any other one this year.

With two more strong IPO candidates under the Alibaba Group umbrella, Yahoo should pick up another $5 billion in value off their $1 billion investment for a total of $8.6 billion - or more money than Yahoo has earned in the company’s combined history! How do we value that?

Yahoo’s entire market cap is "just" $45 billion but a big footprint in China should give them quite a buzz, and the next thing we’ll be hearing about is the mini-Google aspects of Yahoo as they are suddenly seen as a growth stock. Rather than cashing in on this IPO, Yahoo seems to be bidding on the Alibaba.com IPO, picking up another $100 million worth ahead of the retail release next week. Like I said, smart investors!

So, with $8 billion more value from an investment in a stock market that jumped 4% in today’s trading, it’s no more ridiculous to give Yahoo a $67 billion market cap than it is to see the Hang Seng at 31,586 this morning. Assuming Alibaba moves up with the Hang Seng, which is up 50% since August, then Yahoo’s $8 billion worth of Alibaba Group could be $18 billion by March if the Hang Seng keeps growing at this pace. Sure it’s a little tongue-in-cheek but the market seems to be accepting these ridiculous valuations as gospel so who’s to say it can’t last another 6 months?

The original Alibaba got his gold from just 40 thieves. This Alibaba seeks to make its gold from 1.2 billion Chinese.

Comments

[King Kang:]

Yahoo! is great at investing because they have people on the board with loads of experience in the software, computer, and internet industries (not to mention a few others) www.newsvisual.com/new... . They know a great deal when they see one. I agree with the author, for those who thought Yahoo! would go the way of the dodo because of Google, think again. Yahoo! is going to give Google a serious run for its money.

2007 Oct 29 02:53 PM

[screwed:]

It looks like there has been heavy synthetic put buying because the stock has been relentlessy sold down & yet the Nov 32.5 (YHKQZ) calls have declined LESS all day long.

Any comments regarding this, Phil ?

2007 Oct 29 03:48 PM

[screwed:]

It looks like there has been heavy synthetic put buying because the stock has been relentlessy sold down & yet the Nov 32.5 (YHKQZ) calls have declined LESS all day long.

Any comments regarding this, Phil ?

2007 Oct 29 03:52 PM

[screwed:]

It looks like there has been heavy synthetic put buying because the stock has been relentlessy sold down & yet the Nov 32.5 (YHKQZ) calls have declined LESS all day long.

Any comments regarding this, Phil ?

2007 Oct 29 03:52 PM

[screwed:]

Phil, sorry for the dupilicate sends. Didn't think it went thru.

2007 Oct 29 03:55 PM

[screwed:]

Only, short covering in the last 10 minutes prevented it from being a key reversal day (a close below 31.61). The rally in the last minutes was also the biggest bounce of the day because the selling had been so relentless all day long.

2007 Oct 29 04:05 PM

[Uncle Bill:]

What a joke. You're not part of "the street," you're just a guy with a computer. Why didn't you write about which YHOO options you bought? Nice timing, Phil. Aren't you the guy who said he bought puts on Baidu the day before it tanked because it got an upgrade? I just can't figure out why the editors keep putting you on the front page.

2007 Oct 29 04:14 PM

[Philip Davis:]

YHOO put and call volume was huge today. Don't forget that a great way to maniupulate a stock is to buy a ton of puts, sell a ton of shares and drive down the price, then buy a bunch of calls and then rebuy (after you drop a positive story of course!).

Sorry Bill, I know how angry you get when you can't glom a free pick but we didn't decide what to take until after the open because we wanted to see the action but I called the bottom at $31.50 during member chat and we ended up with the April $32.50s at $4 and we sold 1/2 the current $30s for $2.63 to cover.

2007 Oct 29 04:51 PM

[screwed:]

You wrote "...buy a ton of puts, sell a ton of shares and drive down the price..."

Phil, as a sophisticated options trader you should know that would leave one UNhedged to upticks as opposed to selling the stk short & buying calls simultaneously.

IF there had been any "fresh money" bids under the mkt, there would have been more than the dead cat bounces during the day. There was no substantial bounce til the last 10 minutes of short covering.

2007 Oct 29 05:49 PM

[Wolfgang Le...:]

Everybody seems to go crazy about Alibaba / Yahoo! - understandable. But wait, there is something the public should know: Alibaba is the largest online shark fin trader, and the Yahoo! executives think there is nothing wrong with hawking body parts of endangered species. While this might not be of much concern in China, it is a big time issue in the rest of the world. Click this link and read it carefully:

www.celsias.com/2007/1...

2007 Oct 29 07:42 PM

[Froddo:]

I agree!

2007 Oct 30 11:51 AM

[Wolfman:]

What do you agree with Nodkin?

2007 Oct 30 12:18 PM

[NokieNoam:]

It is not going to happen.

2007 Oct 31 03:17 PM

[NokieNoam:]

It is not going to happen.

2007 Oct 31 03:17 PM

[Philip Davis:]

Screwed, you're right of course but I'm talking institutional sized trading, not what you would do with your own account. If I know I'm going to sell 300K shares of YHOO (10% of an hour's volume) and the stock is at $30.80 and I want to make sure I get $30.50 then I buy 3,000 $30 puts at $1.03 and put a sell in for $3.50. This will tank the stock and I puts a sell on my puts at $1.35, collecting net $30.80 on my stock without having to finesse the exit.

Since I know that it was my own selling that caused the sell-off and, assuming there was no funamental reason that I sold, then I could turn around and take calls right when I complete my sell, this morning that would have been the $32.50s for .90, which quickly sprang to $1.10 just 30 minutes after this morning's sell-off. I could be a real jerk and goose them further at the top by buying back 100K shares of stock at the top, kicking my 3,000 calls up another dime or two and then I can roll out of both positions. I'm sure you can do the math and see that, even if I have a Billion dollar hedge fund, that's still going to be worth it to my bottom line.

Ethical or not, with thousands of funds holding Billions of dollars and hundreds of junior traders whose career hangs on maximizing profits - it would be naive to think it doesn't happen hundreds of times a day. Anyone who's had to unload a few thousand shares in a hurry knows anyone can move a stock - when you've got millions of shares it's not a matter of IF you can move a stock but how much you ARE going to move a stock and WHEN you feel like moving it.

2007 Oct 30 05:04 PM

[grishick:]

Looks like a safe bet to take Phil's opinion and expect the opposite.

2008 Jan 29 02:16 PM

[Philip Davis:]

LOL

2008 Feb 01 08:32 PM