Seeking Alpha

kozmic18's  Instablog

kozmic18
Send Message
Currently I'm an options trader that usually invests in technology companies looking for value plays. I've been trading stocks and options since my early 20's and love doing this as a hobby!!! All my articles are my own personal opinion.
  • Alibaba IPO Taking Yahoo To The Mid 40's And Beyond!!! 0 comments
    Apr 20, 2014 10:04 AM | about stocks: YHOO, BABA

    I want to start off by saying this is my first article and please be kind. Ok so let me get right into it. Alibaba is going to file for an IPO as early as Monday in the U.S. This will most likely be the largest IPO in the U.S. trumping Facebook and their IPO debacle. Estimates of Alibaba's valuation from leading analysts have been ranging from 150 billion to a mind blowing 250 billion!!! So how can you play this back breaking event before it debuts? I suggest playing Yahoo into this event.

    Yahoo currently owns roughly 24% of Alibaba and it already trades in the U.S. By the time Alibaba starts trading, it will be bought up quicker than you can say cat in the hat. So why not by it now through Yahoo? Currently you can purchase options that aren't expensive at all and you are purchasing 24% of Alibaba before the debut. I think this is best deal in town right now and I'm not sure why this thing has been bid up already. I will discuss the skeptic side as well as my bullish take on Yahoo.

    I've read a lot of Yahoo and Alibaba articles in regards to this IPO as of late and none of them make sense to me. They are placing Yahoo's stock at a zero valuation and placing the ownership of the 24% holdings of Alibaba at the entire value. As I write this article, Yahoo currently trades at $36.38 with a market cap of 37.52 billion. The company also boasts roughly 4.4 billion in cash. I have read that most analysts don't put much valuation on cash holdings. But let's just say I'm old fashion and cash is king and the current CEO is going to put this to good use along with its Alibaba windfall. Yahoo is said to be possibly selling close to 50% of its stake in Alibaba when the IPO comes out.

    Now to the fun part lets say Yahoo is worthless along with its 4.4 billion in cash. So if Yahoo with its hundreds of millions of monthly customers and I believe the 4th top search engine behind the dominant Google, is deemed worthless let's see what price it should be trading at.

    Possible Value of Alibaba (To the right)

    150 Billion

    175 Billion

    200 Billion

    0.24X150=

    or 24% of Alibaba

    $36.00

    $42.00

    $48.00

        
        

    New cash from IPO

    $18.00

    $21.00

    $24.00

    Total Est. Market Cap

    36 billion

    42 billion

    48 billion

        

    I am just doing basic math and I know its not the exact amount down to the penny but look above. Yahoo is currently trading at the low valuation here, without any premium of what Alibaba will bring when the hype comes in the coming weeks. This isn't even including Yahoo's cash and business that is by some deemed worthless. So what I'm trying to say is this thing is cheap, cheap and well you guessed it, cheap.

    If you were to put Yahoo up for sale without the Alibaba stake they would get 0? Really? Are you kidding me? I looked at my etrade account and they have a trefis score and it has a target of $35 for Yahoo including its Alibaba stake which it gives 40 percent of that valuation. Let me do my basic math here. 35X .40= 14 billionish for Alibaba. Hmmmm? So that gives yahoo a valuation of 21 billion including its cash. That sounds way better for a company on the turn around that recently gave a decent earnings report that seems to be stabilizing. I can't believe that some have been so down on the company. I did find some actual decent articles giving valuations from 10-21 billion. So let me plug and play with these.

    If Yahoo is worth

    10 billion est. Yahoo value w/o Alibaba Stake

    15 billion est. Yahoo value w/o Alibaba Stake

    21 billion est. Yahoo value w/o Alibaba Stake

     

    Plus Alibaba's low valuation of 36 billion

    Plus Alibaba's low valuation of 36 billion

    Plus Alibaba's low valuation of 36 billion

     

    Equals

    Equals

    Equals

     

    46 billion

    51 billion

    57 billion

     
        
        

    The above table suggests Yahoo should be worth $46-$57 billion because there is roughly a billion shares outstanding.

    What if you consider Alibaba to be worth at the higher end 175 billion, 200 billion, and even the crazy one of 250 billion and think Yahoo is worth something on its own. I will use the Alibaba valuations and the Yahoo valuations from above.

    175 billion Alibaba@24 percent =42 billion

    200 billion Alibaba@24 percent=48 billion

    250 billion Alibaba@24 percent=60 billion

    10 billion Yahoo w/o Alibaba stake

    15 billion Yahoo w/o Alibaba stake

    21 billion Yahoo w/o Alibaba stake

    42+10=52 billion

    48+15=63 billion

    60+21=81 billion

    Or $52 price for yahoo stock

    Or $63 price for yahoo stock

    Or $81 price for yahoo stock

    In conclusion, between my three tables above Yahoo should be valued anywhere between $46-$81 dollars a share. If you think yahoo holds value, also consider the fact they will have a contued stake in Alibaba for years to come. Additionally, a new fresh war chest of money if they choose to sell 50% ish during the IPO.

    Now, on the other side, if Yahoo is deemed worthless the skeptics should know this thing is already trading at a low figure of 36 billion or $36 a share and could be valued at up to 48 billion or $48 a share respectively. Also to note any additional hype that may boost these valuations even higher for both scenarios!! So I recommend getting in on Alibaba by purchasing Yahoo in the form of options or straight up because they are cheap and your getting in before this thing straps rocket boosters on its back!!!

    Lastly, Alibaba's filing and hype will be the real story here so depending on where they choose to value Alibaba will determine the value for Yahoo. I know it wont be 250 billion but it could be in the range of 168 billion which is the average among all analysts. So place your bets!!

    Disclosure: I am long YHOO.

    Additional disclosure: These are my opinions and I am long and hold positions in yahoo.

    Stocks: YHOO, BABA
Back To kozmic18's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.