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Yahoo’s Core Business Can Be Purchased At A Negative Enterprise Value

|Includes: Altaba, Inc. (AABA), BABA

Background

I want to make this obvious, so I'm going to keep this short and sweet.

Yahoo owns 384 Million shares of Alibaba's (NYSE:BABA)

This accounts for 85% of Yahoo's (YHOO) $37B Market Cap.

This implies that the remaining components of YHOO's businesses are valued at $5.3B Market Cap

The calculated Enterprise Value, EV of YHOO, excluding BABA:

5.3B Market Cap

1.186B Debt

6.9B Cash

EV = MktCap + Debt - Cash = -0.4B !!!

Note if you remove the component which is from its holding in Yahoo Japan the core business has an even more negative EV!

In 2014, YHOO generated an adjusted EBITDA of approximately $1361M and Rev of $4618M, I don't care what multiple you use to capitalize these, the EV should not be negative.

The Catalyst

The planned spin-off of the YHOO's stake in BABA in Q4, 15 will remove this component of value from the YHOO market cap and allow investors to see the undervalued core business.

If you wait until post spin-off, clearly, it will be too late.

Long 2.47xYHOO, Short 1xBABA to get a pure play on YHOO excluding BABA.

Here are some Risk

The Spin-off is not completed

YHOO has to pay taxes as result of the Spin-off

More Info

For those that want some more information:

https://seekingalpha.com/article/3294215-the-most-logical-way-to-play-yahoos-pullback

Also notable, this is similar in opportunity to the Palm/3COM spin-off in the early 2000's

http://people.ischool.berkeley.edu/~hal/people/hal/NYTimes/2005-03-10.html

Calculations

Additional disclosure: This is not a recommendation. Do your own research.