Yahoo! Inc.'s market value has doubled since Marissa Mayer took over as chief executive officer, which you might think would be cause for celebration. But more than all of those gains can be attributed to the gangbuster growth of Alibaba Group Holding Ltd. and Yahoo Japan Corp., two thriving companies that are part-owned by Yahoo. In other words, the implied market value of the rest of Yahoo has collapsed during Mayer's tenure, and might even be negative.
Alibaba is valued at about $153 billion, according to analysts surveyed by Bloomberg News. Yahoo itself is worth about $39 billion as of this writing and this includes its ownership of about 24 percent of Alibaba. If you subtract that out you are left with a company that's worth just a little more than $2 billion -- less than AOL Inc., Groupon Inc., or Zynga Inc.
Yahoo also has a 35 percent stake in Yahoo Japan, a publicly traded company now valued at about $32.3 billion. Subtract out Yahoo's stake and this means that investors seem to value Yahoo's own business at less than nothing -- not what you would expect from a profitable enterprise.
This doesn't exactly reflect well on Mayer and her turnaround strategy. Alibaba was valued at about $35 billion back in the middle of 2012, which meant that Yahoo's stake was worth about $8.4 billion at a time when Yahoo had a market value of roughly $19 billion. Yahoo has since gained about $20 billion in market value, while the value of its stake in Alibaba has soared to almost $37 billion. Yahoo's 35 percent stake in Yahoo Japan, meanwhile, has increased to about $11.3 billion, up from $7.7 billion as of September 2012. If market prices and analyst estimates are to be believed, Yahoo's core business has lost $12 billion in market value since Mayer took over.
Data from Yahoo's earnings reports support the theory that profits from its minority stakes in Alibaba and Yahoo Japan are masking a decline in the core business, although one could quibble with the conclusion that Yahoo has a negative market value. (See page 18 here, for example.)
There are a few ways to interpret these data. Alibaba and Yahoo Japan could both be overvalued, thereby understating the true value of Yahoo's core business. Alibaba's rapid growth as a financial-services firm might be unsustainable, for example. Or it's possible that Yahoo's shares are too cheap, in which case Mayer, her executive team and the company's directors should be pushed to translate the business's true value into market capitalization. Or maybe the markets have it right and Yahoo's business is hopeless.
(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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