Michael B. Krause

Microsoft in Perfect Position to Undercut Previous Yahoo Offer

Tom S:

1) My calculations are based on the assumptions that search market share for MSN (and others: Yahoo, Google, etc) are fairly in line with their revenues. I am making (what some may consider disagreeable) a leap saying that search shares are consistent enough to get a handle on valuation. Is 100% of search worth $150B total? Maybe not search alone: but search, display and everything else that comes with it does come to that. MSN is worth more than search, but so are Yahoo and Google. So for blunt measurements (which are practical for such high multiple stocks), I think its appropriate.

Add up Google, MSN, and Yahoo market caps and you get somewhere close, plus or minus normal volatility (recall GOOG was worth 25% less just a few weeks ago because analysts incorrectly pinned Google's growth curve).

2. I meant revenue when referring to cash flow, not Cash flow on operations.

3. I agree it may not be foolish to merge, but at such a high multiple, all benefits from the merger would be likely forgone with such an overpriced initial transaction. High risk, minimal reward.

Lastly: $47B isn't a merger. Thats a money giveaway.

Microsoft in Perfect Position to Undercut Previous Yahoo Offer

You are definitely right that 16% earnings yield is not a normal return. You caught my error.

I was a bit sloppy there - I made a causative assumption saying that since their real returns are much weaker (than even 6% earnings yield on such a high multiple that MSFT offered), that the likely result of such a collaboration would at best create normal (somewhere between the 58 multiple MSFT is offering and the best-case multiple of 6) returns for enormously high risk.

Microsoft in Perfect Position to Undercut Previous Yahoo Offer

$20B?

Take a look at the latest 10-Q. $10.5B total stockholder equity, 2.2B of that being Alibaba.

www.sec.gov/Archives/e...

My estimate of a $30B offer value on Yahoo is nearly a $10B premium on the cash flow valuation estimate, perfectly making up for these 'assets' you mention. Their interest in Alibaba is worth $2.2B according to their own 10-q.