Surprisingly, there is still confusion amongst investors about Yahoo!’s (YHOO) EBITDA multiple with some analysts quoting high single digit multiples while others cite mid-to-low single digit multiples. With this post I will hopefully put to bed that confusion.
We will start with a definition of enterprise value: Market Capitalization plus Debt plus Preferreds plus Minority Interest minus Cash minus non-consolidated investments. The confusion with Yahoo! lies with the value of its Asian assets, which are investments in Yahoo! Japan and investments in Alibaba (OTC:ALBCF) in China, whose values must be subtracted as in the above calculation. But first let’s start with the basic calculation detailed in the following table. The EV/EBITDA multiple without factoring the Asian assets is 9.6x.
Now we value the Asian assets – Yahoo!’s 34% interest In Yahoo! Japan, Yahoo!’s 30% interest in Alibaba.com, and Yahoo!’s 40% interest in Alibaba Group. All stakes are taxed at the standard 40% corporate tax rate consistent with Yahoo!’s CFO’s comments at the recent Analyst Day that the tax basis on those assets are low. In total, we arrive at $8.7 billion in after-tax value for those assets or $6.16 per Yahoo! share. .
Subtracting that value from the unadjusted enterprise value from the first exhibit yields a correct enterprise value for Yahoo! of $7.8 billion. Dividing by the consensus 2010 EBITDA of $1.8 billion yields a 2010 EV/EBITDA multiple of 4.5x.