Yahoo Valued at Less Than Asian Assets After Alibaba IPO

Yahoo CEO Marissa Mayer
Yahoo, led by Chief Executive Officer Marissa Mayer, has benefited for years from stakes in Yahoo Japan and Alibaba -- and the stock action shows just how much the company depended on those businesses for value. Photographer: Simon Dawson/Bloomberg

Yahoo! Inc. is now worth less than the value of its Asian assets.

The Web portal’s shares fell 2.7 percent after Alibaba Group Holding Ltd. -- which Yahoo owns a stake in -- made its stock market debut yesterday. Yahoo, which sold more than 120 million of its 524 million Alibaba shares in the initial public offering, declined to $40.93 at the close in New York.

That put Yahoo’s market capitalization at $41 billion, less than the combined $45.2 billion value of the Sunnyvale, California-based company’s Asian assets. Yahoo’s remaining stake in Alibaba is now valued at about $37 billion, and the company also owns a piece of Yahoo Japan Corp. that is worth $8.2 billion, according to data compiled by Bloomberg.

Yahoo, led by Chief Executive Officer Marissa Mayer, has benefited for years from stakes in Yahoo Japan and Alibaba -- and the stock action shows just how much the company depended on those businesses for value. As investors took gains on Yahoo after Alibaba’s IPO, the true worth of the Web portal’s core online-advertising business was laid bare.

“The majority of the value from Yahoo continues to come from its asset base,” said Colin Gillis, an analyst at BGC Partners. “This is a company that still has troubling underlying metrics.”

Mayer, in a statement yesterday, didn’t address Yahoo’s valuation or that of its Asian assets.

“We congratulate our partners at Alibaba on completing today’s well-received IPO,” she said. “Yahoo has enjoyed a nine-year relationship with Alibaba, and we remain major investors in the company.

Tax Hits

While the market value is large for Yahoo’s Asian assets, that doesn’t necessarily reflect the value available to investors and the company because of taxes, said Ben Schachter, an analyst at Macquarie Securities USA Inc. Yahoo, which would have made $8.3 billion by selling Alibaba shares at the IPO, only reaped around $5.1 billion after taxes.

Taxes are ‘‘one of the big issues,” Schachter said.

Still, Yahoo faces negative perceptions as its core business increasingly needs to stand alone from its Alibaba stake. If Alibaba’s shares keep rising and the value of Yahoo’s remaining piece of the Chinese e-commerce company goes up, the relative worth of Yahoo’s core business will also continue to slip.

CEO Hotseat

All of this increases pressure on Mayer, who has been working to turn around the Web portal since she took the CEO role in 2012. Mayer has tried to shore up Yahoo’s business by acquiring startups and investing in content and services to woo more Internet users and attract advertisers.

So far, her efforts have failed to narrow the company’s widening gap in online advertising with Google Inc. and Facebook Inc. Second-quarter sales, excluding revenue shared with partner websites, fell to a less-than-projected $1.04 billion. Analysts on average estimate sales this year will slip to $4.35 billion, the lowest level since 2005, according to data compiled by Bloomberg.

Declines in Yahoo’s share price may continue as investors are more likely to move into Alibaba and out of Yahoo now that they can own the Hangzhou, China-based e-commerce company’s shares directly, said Neil Doshi, an analyst at CRT Capital Group LLC.

With Alibaba, “people got their allocations and they’re just dumping their Yahoo shares because that trade is kind of unwinding now,” said Doshi, who rates Alibaba a buy and has the equivalent of a hold on Yahoo.

Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said Yahoo declined as people “buy the rumor, sell the news.”

“I’d expect them to be down today,” he said yesterday. “Yahoo’s been rallying for a couple of weeks on this, so it’s not likely to continue once the news is out.”

SoftBank Corp., the biggest shareholder in the Chinese e-commerce company, forecast a gain of about 500 billion yen ($4.6 billion) from Alibaba’s listing. The Japanese company plans to book the funds in the six-month period ending Sept. 30, according to a statement in Tokyo today.

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