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
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 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
For those that want some more information:
Also notable, this is similar in opportunity to the Palm/3COM spin-off in the early 2000's
Additional disclosure: This is not a recommendation. Do your own research.