What Is Yahoo Actually Worth ?

Here’s a question worth pondering: What is Yahoo (YHOO) actually worth per share, both today and 3-5 years from now?

I expect Yahoo’s stock will get nicely whacked tomorrow. Does this create an opportunity?

There are many ways to answer this question. The traditional balance sheet approach is so well covered, let me suggest something else. Its worth, at least from an M&A perspective, what someone else is willing to pay.

Microsoft (MSFT) believed Yahoo was worth $33, at least as a part of Microsoft. Wouldn’t that imply the company has a value above the January 31 pre-bid price of $19 ?

Short answer: Maybe.

The key is whether there are any other bidders lurking put there.

Consider another high profile deal that failed to go through: GE’s attempted takeover of Honewell (HON) back in 2001. You may recall that HON was in merger talks with United Technologies (UTX) when Jack Welch offered $55.39 a share, which topped the UTX’ bid.

When the deal fell apart — rejected by EC anti-trust rules — the acquisition target dropped to the low $30s. By the market lows in fall 2002, it even kissed $20. Over the past 6 years, HON has gained better than 300%. I have been bullish on HON for quite some time, buying after the deal fell apart and holding on for many years; However, I recently sold out of a long held position in HON.

There are some similarities between GE/HON and MSFT/YHOO — and one crucial difference: Another bidder. In the GE/HON deal, there was also another bidder — United Technologies. I am less certain a friendly 3rd party bidder will show up to woo Yahoo!

Your thoughts?

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  1. Lars commented on May 4

    YHOO stand alone may be worth $20, but it will be taken over (maybe by MSFT at lower than $31 price) if YHOO shareholders yell loud enough.

  2. Media Hype commented on May 4

    I am sorry but with negative growth (PEG of 3) and incompetent YHOO management, the stock does not worth more than $3 per share (and high risk of it going down to zero).

    Ballmer is an idiot to offer $33. For this amount of money, MSFT can hire the best talent in the world and catch up with GOOG within a few years (instead of overpaying for a loser and later wasting more money on integration)

  3. Howard Veit commented on May 4

    I’ve used Yahoo for six or more years BUT only for their calender and a few sport team reports. Everything they have is late, especially the scores which are sometimes half a day late. Search?? You have to be kidding. They look at search as one more profit center loaded with intrusive ads. I’ve used Google as my reliable search for more than ten years (starting shortly after they came on line) and I have no idea why they fear Yahoo. They have bupkis….

  4. dave54 commented on May 4

    Given Microsoft’s history of sometimes rough dealings, if they really wanted Yahoo, then having Ballmer take a high-profile role in the negotiations may have been a tactical mistake.

  5. Ralph commented on May 4

    I was one of the very first users of Yahoo and it is still my home page today. Back then it was not about SEARCH and that is the is the core of what is wrong with the company today.

    It has let itself be defined by Google. That is one of the 10 most broken rules in marketing.

    Instead of paying attention to the value that it brings to its users and building on that, it is competing with Google in the one thing that they can not be beaten at.

    This is all about a lack of leadership. No offense to Jerry Yang. He is an incredibly smart guy and he is trying very hard but he is not the right choice. If this company were to do like Ford did and bring on some one like Mr Mullaly, this stock would be $100 in less than 5 years.

    Bottom line, the Yahoo board is to blame here. I can only hope that this little fight with MSFT has given them the kick in the pants that is needed to get this company back on track.

    What a waste of tremendous potential!

  6. bdg123 commented on May 4

    If you value Yahoo based on reality, in other words free cash flow or discounted cash flow, Yahoo is probably worth between $7-12 a share. Of course, Yahoo’s stock is still being valued incorrectly but that too will pass. It’s intrinsic value was closer to where the stock price was in 2003. $4.

    Yang is doing the shareholders a disservice and so is Ballmer. Yang because his ego is in the way of reality and he likely has visions of Yahoo returning to the bubble it was in 2000 and Ballmer because his bid is astronomically overpriced. Yahoo is one of the worst managed companies on earth. Semel was an awful CEO and all of these executives are cashing out huge money while destroying the company.

    Yahoo’s brand is really not worth as much as people want to believe. All of its properties aren’t really that valuable if you measure the financial value. And, they are yesterday’s news in search so what is Ballmer doing? He’d be better off hiking the dividend substantially if Microsoft can afford to piss away money like this. They will never see a tangible return for this type of bid.

  7. Andy Tabbo commented on May 4

    Great, great decision by msft. A msft-yhoo would have been a DISASTER. Yahoo has lost the plot. It’s over for them. That company is heading the way of the Dodo bird.

    Hope the BoD at Yahoo have some good attorneys to stave off the endless stream of shareholder lawsuits.


  8. E commented on May 4

    Who else would bid on Yahoo? The only thing I can come up with is a scenario where TWX splits off AOL, which then does a friendly merger with YHOO. AOL has redefined itself as a web adservice company, which would align well with a portal/aggregator/search engine like Yahoo.

    Problem with this scenario is AOL has been a dog and would be cash poor relative to MSFT, thus unable to outbid Ballmer.

    By the way, an AOL split from TWX is “when, not if”. TWX is a nice play right now.

  9. Chief Elf commented on May 4

    Yahoo is “toast”. Failing strategy, lack of real innovation, bloated and no longer timely or relevant. It’s going to slowly contract like compost. Microsoft is probably the next dodo. No one wants what they sell anymore, bloated, etc. Egos are killing them all. Balmer has always been the kink of arrogance.

  10. PLing commented on May 4

    Yahoo may not be as important as Bear Stearns to Wall Street, but can you imagine life without Yahoo mail, or Messenger or Launchcast or any of their thriving offerings? One thing you have to face is that Yahoo is not going anywhere anytime soon, regardless of what share holders think. It still has the biggest visitor base on the internet. Search is the cash cow today, but it wasn’t yesterday, and it may not be tomorrow.

    Point is, look at it from a long haul. They need new management, maybe a few spinoffs and some more layoffs to reduce the flab, and in a couple of years, you could be looking at something totally different. Either way, Jerry Yang is history – Cause he’ll quit if MS gets their hands on Yahoo, and if they don’t, Yahoo’s share holders will kick him out.

    As for the share price, Yahoo might be going down now, but its going to zoom up in late July or early August.

  11. John Borchers commented on May 4

    At 0.56 EPS for this year it’s worth around $10 plus whatever growth they come up with which doesn’t look to be much.

  12. Jay Weinstein commented on May 4

    Here’s the question I would have liked to ask Buffett and Gates at the meeting yesterday, so I will pose it to the commenters instead:

    With all the academic data about big mergers failing and the obvious difficulties in putting together these two dramatically different companies, why did Microsoft do this in the first place? I don’t think it had a ghost’s chance in Hades of working.

    I think MSFT got lucky — it would have killed the company at any price, 28,31,37 whatever…at least Ballmer came to his senses in time… Yang should be hung on a strang by his shareholders!

  13. bt commented on May 4

    What is anything worth at any given time considering its present state and anticipated future? This is a timeless question.

    The only valid answer is what the market decided to pay for it on a given day. The market is considering everything it knows about the past, current, and future of a company and someone buys/sells based on that. We will find out what that number for Yahoo is when market opens Monday.

    I wouldn’t buy Yahoo with my money for any thing over $10. If someone else finds value above that price, they are welcome to put down their money and take their chances.

  14. dblwyo commented on May 4

    Great comments all. Thanks. My few cents – a merger would have been a disaster taking two badly run, culturally and technically incompatible behemoths and smushing them together to create whole much less than the sum of the parts. They’d have spent the next few years fighting each other. YHOO, as observed has some great properties which need to be re-developed and marketed. It’s search technology has recently gotten better but it needs a strategic flank assault,i.e. not letting itself be defined by GOOG but finding its’ own strategic direction. Which there are hints of in the last Investor presentation but so discombobulated as to be incredible. MSFT has gotten better but has similar problems.
    The key difference between GE/HON or HON/UTC is that all of those companies are well-run, tightly disciplined AND execute well today while positioning themselves with innovative and strategy changes for tomorrow. Neither YHOO or MSFT meet those tests IMHO, particularly YHOO. In other words, where’s the beef ?

  15. sonny commented on May 4

    i heard rumor they had a friendly side approach and a possible hostile.

  16. Michael Donnelly commented on May 4

    Second time today I had to type in my name, email and URL, don’t know why it isn’t remembering me

    YAHOO could easily be worth $0 in 3-5 years, I can’t imagine why anyone would pay for it.

    We know what Yahoo does. Search, we know some kid could create a better search engine at home, we know they could be capitalized.

  17. Erick commented on May 4

    YHOO reminds me of today’s home seller — still clinging to unreasonably high prices from a market long gone.

  18. Andy Tabbo commented on May 4

    Many years ago (2000) the smartest guy I’ve ever known described msft to me as a hugely inefficient bank. That comment has stuck with me to this day and I think it is as relevant today as it was eight years ago.

    The smartest thing msft could have done years ago was just buy into the GOOG IPO or the pre IPO seeding…then they wouldn’t give a rat’s ass whether or not GOOG rules the world.

    Probably the best thing they could do TODAY is higher 100,000 kids in college part time to vet “cool” new companies doing “cool” new things…and just invest a little bit of their cash in the companies that rank near the top of the various lists.

    The only reason I still visit YHOO websites is because they were my bookmarks from many years ago….the YHOO finance page is still easy to navigate….so it’s pure laziness that I still use YHOO. If they went away completely, it wouldn’t be a big deal.

    And that’s their problem…relevancy.


  19. t commented on May 5

    microsoft will be back. this is likely part of its strategy. it is counting on a backlash that removes most, if not all, of the current board, along with jerry yang and sue decker. if that happens, then yahoo really will be worth less. that sort of disruption will send its employees running for the hills and any company but one in such turmoil.

    again, microsoft knows this.

  20. Frank Nesbitt commented on May 5

    I am unimpressed with Yahoo as a business. They are old and stale.

    If another bidder came along, I would immediately become unimpressed with that business as well.

    Yahoo may get bought eventually, but not at 30+. It will be far lower.

  21. Eric commented on May 5

    Yahoo is a conglomeration of a bunch of really useful tools on their own. Yahoo mail, Yahoo Finance, Yahoo Shopping, Flickr, Yahoo Games, etc. Yahoo has to have search because they are considered a “search engine” company.

    However I see Yahoo has a large cash cow company capitalizing on the monetary value of the traffic coming to all of their properties. The way Yahoo monetizes these internet properties is with ads. Yahoo needs to be pushing their ads service for the individual properties instead of trying to compete at search. I think Yahoo has a lot of potential but it may not realize that potential without a major player in internet advertising helping them innovate.

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