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.