Yahoo! Inc.: Can This Save Yahoo Stock?

The Next Catalyst for Yahoo StockThe Next Catalyst for Yahoo Stock?

We all know that Yahoo! Inc. (NASDAQ:YHOO) stock probably won’t be able to climb back on its own. The major thing to watch right now is the bidding war for the company’s core assets and the latest information suggests that Yahoo stock might be hotter than you think.

A report from CNBC suggests that Yahoo has received multiple bids, with some of them at or above $5.0 billion. Telecom giant Verizon Communications Inc.’s (NYSE:VZ) $3.5-billion bid for Yahoo’s core Internet business is considered to be in the lower range of the bids the tech giant received. (Source: “Yahoo Has Received Multiple Bids at or above $5 Billion for Core Business,” CNBC, June 9, 2016.)

Not that long ago, Verizon was considered one of the strong contenders for Yahoo’s core assets. Last year, it spent $4.4 billion buying AOL. What also helps is that Verizon has put AOL’s CEO, Tim Armstrong, in charge of exploring a possible deal with Yahoo. Tim Armstrong and Yahoo’s CEO, Marissa Mayer, have known each other for years; they both worked at Google before moving on to their current positions.

Note that while Verizon’s bid was not that competitive in monetary terms, the report did not specify which assets are included in the bids. For instance, some bids included parts of Yahoo’s intellectual property and real estate, while others didn’t.

The implication here is that if Verizon wants to acquire Yahoo’s core assets, it would need to put in a higher bid. At the same time, it might also want to include other parts of Yahoo, so it could help simplify the process for the seller.

And don’t forget that even legendary investor Warren Buffett is willing to provide financing for a bid for Yahoo. Last month, Buffett confirmed that he would be willing to financially back Quicken Loans Inc.’s bid for Yahoo’s core assets. (Source: “Warren Buffett: I May Help Bankroll Billionaire Dan Gilbert’s Bid to Buy Yahoo,” CNBC, May 16, 2016.)

The reason why this auction attracted so many bidders is simple: Yahoo’s core Internet business is quite valuable in today’s market.

Sure, the company is not what it was 10 or 15 years ago. The search engine industry is now dominated by Google, video streaming is split between YouTube and Netflix, Inc. (NASDAQ:NFLX), and social media users tend to choose Facebook Inc (NASDAQ:FB). Still, Yahoo has something that’s indispensable to every company that wants a piece of the action in the Internet industry—users.

You see, whether it’s Verizon trying to expand its presence in video advertising or some private equity firm trying to build a stake in the Internet industry, their plans would only work if there’s a large enough userbase.

Last time I checked, Yahoo has more than one billion people using its e-mail, finance, sports, and video sites every month. If you aren’t one of the established Internet giants like Alphabet Inc (NASDAQ:GOOG) or Facebook, it would take years of effort (and money) to build this kind of traffic.

Another reason why investors are willing to pay top dollar for Yahoo’s Internet business is the relatively safe nature of it. For the most part, Internet companies represent risky investments. You could win big time, but you could also lose a lot. In the case of Yahoo, though, it still acts as a web portal to more than one billion Internet users around the world, with some of them coming to Yahoo for more than a decade.

My speculation is that Yahoo’s core assets would eventually go to a strategic buyer who sees material synergies through the deal.

The Bottom Line on Yahoo Stock

The final round of bidding for Yahoo’s Internet assets starts next week and is expected to conclude mid-July. When the company finally announces who the buyer is and how much they are willing to pay for it, expect to see more action in YHOO stock.