The Case for YHOO Stock
When the history of Yahoo! Inc. (NASDAQ:YHOO) is written, Marissa Mayer won’t come off looking great. There were really high hopes that she could turn around YHOO stock, but that’s the thing about really high expectations—they set you up for failure.
Nonetheless, I think Yahoo stock is oversold. Marissa Mayer has done a lot of damage with her frivolous spending; there’s no denying that. She spent $108 million a year on free food for her staff and bought startups that her buddies founded. (Source: “Marissa Mayer is blowing money on ridiculous things,” Business Insider, December 14, 2015.)
One of those startups was created by her ex-protégé at Google. She used her authority at Yahoo to arrange a $230-million acquisition of that company. All told, Marissa Mayer showed reckless disregard for shareholders by burning their cash like that.
It’s inexcusable, but it doesn’t mean that Yahoo stock is worthless. And right now, the market is pricing YHOO at less than nothing. Take a look at this chart.
This chart makes an undeniable case in favor of Yahoo stock. Let’s break it down…
The column all the way on the left says that Yahoo has an overall market capitalization of $33.8 billion. But there are big investors in YHOO stock who want to break up the company, so we need to see what its individual parts are worth. (Source: “Yahoo Is Looking for a New Way Around Alibaba Taxes,” Bloomberg, December 2, 2015.)
The company’s Japanese subsidiary has been a profit center for the last few years. It is a valuable asset that the market prices at $8.7 billion. Then there’s the portion of Alibaba Group Holding Ltd that Yahoo bought before the company’s initial public offering (IPO). It’s worth a whopping $32.6 billion right now.
Add those two together, throw Yahoo’s cash reserves on top, and you end up with a $48.1-billion valuation. But the market capitalization of Yahoo is just $33.8 billion?
How does that make sense? What about Yahoo! Finance, the fantasy football app, or even Tumblr? Even if you think those things aren’t great assets, they’re certainly worth something. Yet the market is valuing Yahoo’s core at -$14.3 billion.
That’s why I think YHOO stock is oversold. I mean, come on, Yahoo stock may be on the brink of oblivion, but it’s not worth less than nothing.