Why I'm buying Yahoo at $20.
If Alibaba is worth $65 billion (in 6 months, when there will be 2 more quarters of growth behind it), Yahoo’s stake will be worth $13 billion. After taxes and fees (and let’s assume they sell the whole stake, even though they only have to sell half), they’ll get back $8.1 billion in cash.
The Alibaba IPO will also wake investors up to the stake Yahoo owns in Yahoo Japan. Today, Yahoo Japan is worth JPY1.72 trillion (or $19.6 billion). Yahoo’s 35% stake after-taxes and banker fees is worth $4.2 billion.
- Yahoo had another $2 billion in cash before the September Alibaba stake deal. And then they got $4.3 billion in cash from that deal plus $550 million in preferred stock in Alibaba (and an IP royalty stream which Alibaba has to pay until IPO). That $550 million in preferred stock will double (due to the much higher valuation) when Alibaba IPOs and be worth another $1.1 billion to Yahoo.
- To this point, Yahoo will have about $19.7 billion in cash.
Get it while you can.