Here's the basic information:
(grabbed from the CNBC screen)
- 40% of Alibaba ($12 billion)
- 35% of Yahoo Japan ($5 billion)
- Yahoo keeps 15% stake in Alibaba
- Tax-free, cash-rich split
- Yahoo "core" valued at $6/share?
I don't know what the last item valuing Yahoo's core business at $6.00 means. The stub value after deducting the $17 billion on the deal is $2/Yahoo share.
Actually, dividing $17 billion by the 1.24 billion shares I think is outstanding gives $13.70/share, and Yahoo is trading around $16/share so that gives the Yahoo operation a value of $2.30/share.
But actually, the 3Q figures show that Yahoo has cash, cash equivalents and bonds worth $2.87 billion on the balance sheet. That's $2.31/share, so the market is actually giving the Yahoo "core" business a value of zero.
So here's my math:
Yahoo's Asian holdings: $13.70/share
Cash, cash eq and bonds on balance sheet at September-end 2011: $2.31/share
Stock price: $16.00
Implied value of core business: $0.00
What is this business actually worth? Here's some info for the last four quarters of Yahoo's core business:
For the last four quarters through September 2011, Yahoo had total revenues (excluding traffic acquisition costs) of $4.4 billion and operating income of $778 million. Using a 35% tax rate, that is a net income of $506 million or so and with 1.24 billion shares outstanding that's around $0.41/share in EPS. This is also very close to free cash flow per share.
At a 10x p/e ratio, that would value Yahoo's core business at $4.10/share giving a total value of $20.00/share or so for the whole of Yahoo (including the Asian holdings). I think I heard an analyst mention the value of Yahoo at $20/share, so this calculation is not far off.
If you assume a 10% free cash flow yield for Yahoo's core business, we can get a similiar figure. With free cash flow in the past four quarters of $560 million, that's $4.51/share, so not too far off from using a 10x p/e multiple (which gives a $4.10/share value).
As of the end of the third quarter, Yahoo's guidance for the 4Q 2011 was:
Revnues: $1,125 - $1,235 million
Operating income: $200 - 260 million
Using the midpoint of this guidance, you get 4Q 2011 revenues of $1,180 million and an operating earnings figure of $230 million.
So doing the above exercise using a 2011 fully year projection would result in a figure that is pretty close to the last four quarters.
The problem with the above analysis is that revenues at Yahoo has been declining 4-6% year-over-year in the past four quarters. If this trend continues, it's possible that Yahoo may not be worth the above. It may well be worth much less.