Selling Yahoo For Alibaba? Not So Fast
Comment Now Follow Comments
There have been several commentators lately on business TV and on blog posts suggesting that Yahoo YHOO +0.38% (YHOO) investors will soon sell their shares in the Internet pioneer in order to buy Alibaba (BABA) shares directly.
The thinking seems to go that Yahoo’s stock has only risen in the last two years due to the appreciation of Alibaba. And, post-IPO, you can own Alibaba shares directly, so why would you need to own Yahoo shares? These commentators are expecting that Yahoo’s shares will drop in value after the Alibaba IPO.
Here are some headlines I’ve seen:
- Is Yahoo’s Alibaba Run Over?
- A Bunch of Yahoos
- Yahoo’s time as an Alibaba proxy is running out
Anyone who has followed any of my recent writings and comments about Yahoo will know that I’m anything but a Marissa Mayer apologist. However, I’d like to point out some flaws in this argument that you should dump your Yahoo shares before everyone else does in order to have direct exposure to Alibaba.
First of all, this argument is not new. In July, when Yahoo’s stock price was $32/share, there were many on business TV suggesting you should get out of Yahoo’s stock in order to free up cash to buy Alibaba directly. Now Yahoo’s stock price is close to $43/share so that hasn’t been a good strategy.
(AP Photo/Marcio Jose Sanchez, File)
But let’s look at the merits of the argument now. The reality is that Yahoo is going to continue to own 16.3% of Alibaba post-IPO. And they’ll have lots of cash (probably over $11 billion). And they’ll have their 35% stake in Yahoo Japan . And then their plain old core business doing about $1.2 billion in annual EBITDA now.
Yahoo has always been a sum-of-the-parts story and it’s going to continue to be post-IPO. The Yahoo stock price is going to be worth whatever folks think all those assets are worth.
What are they all worth? I’d say the Yahoo Japan stake is worth $5 billion assuming they unwind the stake at current levels and pay all taxes (which there’s probably a good solution for avoiding). I’d say the core business of Yahoo is worth $10 billion to a strategic buyer knowing full well that they can cut headcount by 10,000 people and see an enormous jump in headcount. So that’s $26 billion right there.
Then we have 16.3% of Alibaba. What’s that going to be worth post-IPO? My guess is that Alibaba will trade up to $90/share or a market cap of $215 billion. That means Yahoo’s remaining stake would be worth $35 billion assuming Yahoo avoids taxes on that stake (which I think is highly likely when they dispose of the stake a year from now in Hong Kong and keep the money overseas to borrow against). If you assume Yahoo pays full taxes on that stake (which they won’t), it’s worth $23B.
But Yahoo’s not going to sell its stake right away. They’re going to keep it for another year. What’s it going to be worth then? No one knows for sure but my modelling suggests Alibaba will be trading around $111/share a year from now or $275 billion. If true, the Yahoo stake will be worth $45 billion untaxed (which I think is the correct way to think about what will happen when they liquidate their stake in the jurisdiction of Hong Kong).
So you have in Yahoo’s stock a collection of assets where the Alibaba stake would be worth $45 billion in a year from now and everything else would be worth $26 billion. Combined that’s $71 billion in assets potentially — or about $71/share.
So is Yahoo’s stock going to stop being a proxy for Alibaba post-IPO? I don’t see it when two-thirds of the potential value of the assets within Yahoo will be related to Alibaba.
Here’s an example to think about. In 2001, a South African newspaper company bought a stake in Alibaba competitor Tencent. Today, Naspers still owns 34% of Tencent. Look at the charts of these two companies. Since 2007, Tencent is up 1880%. Naspers is only up 635%. Not as much but it makes sense since it “only” owns 34% of Tencent (which is worth about $50 billion today). And what have other newspaper companies done over that timeframe? The New York Tims is down 40% in value and Gannett GCI +1.09% is down 53%.
My point is that Naspers investors have always adjusted the value of their investment to reflect the current valuation of Tencent. They didn’t ignore it suddenly.
Yahoo’s stock post-Alibaba IPO will continue to trade based on the value investors perceive in its assets. Maybe there will be some turnover of shareholders. Maybe day-traders will flip out of Yahoo stock and buy Alibaba stock. But if there is a big drop in price of Yahoo’s stock, I doubt it won’t be long before other investors sniff out a possible path for how Yahoo’s stock could trade up to $71/share pretty quickly.
Don't know why.
CNBC said they are leaving a lot of money on the table by pricing it at $69. Look for more revisions.
On-Track Innovations Soars As Apple Trade, But There's More To Company Than iPhones
Sep. 11, 2014 8:29 AM ET | 6 comments | About: On Track Innovations Ltd (OTIV)
Disclosure: The author is long OTIV. Author is long OTIV shares and also holds OTIV shares in a model portfolio for paid subscribers. (More...)
Apple Pay and NFC inclusion on new devices validates NFC technology and shift to cashless society.
On-Track Innovations owns key IP and patents related to NFC, which involves a current lawsuit against T-Mobile.
On-Track expects to have positive EBITDA in first quarter.
Expansion coming in key growth markets of parking, self service kiosks, and petroleum.
Demand for products continues to be high with several large orders reported already in 2014.
Shares of On-Track Innovations (NASDAQ:OTIV) soared as high as $5 on Wednesday, setting a new 52 week high. Shares ended the day at $3.55, an increase of 7% from Tuesday's trading session. The company has strong technology and a presence in several growing fields that will increase valuation going forward. Wednesday's large move was unsustainable with shorts seeing an opportunity to crush shares back down.
On-Track Innovations is linked to NFC (near field communications), one of the dominating themes from Apple's (NASDAQ:AAPL) presentation on Tuesday. NFC will be featured on the new iPhone 6, iPhone 6 plus, and also the iWatch. Apple is using Apple Pay on these devices and hopes to revolutionize how consumers pay for items on a daily basis.
On-Track Innovations has NFC technology that allows for cashless transactions in several markets. The company helps a wide range of customers including banks, vending machines, mass transit, petroleum, and parking. The company is considered a pioneer in contactless payment market.
On Wednesday, the company issued a press release that perhaps came across as a little pump and dump style. The company is piloting a new WAVE and NFC Insert add on device program to several banks and mobile network operators. WAVE has the technology to make iPhone 4, 4s, 5, 5s and the iPad have the same NFC capabilities as new models. WAVE is already certified by MasterCard and Visa and offers NFC solutions to old models. This is a product that is already available and was just rebroadcast on the heels of the iPhone 6 event.
WAVE is currently installed at various financial institutions. More importantly, the WAVE devices are in several pilot programs with mobile operators and mass transit providers. During the second quarter earnings call, On-Track said this about WAVE, "WAVE is a perfect unique solution to NFC-enabled existing smartphones, such as all current models of the iPhone devices".
Apple Pay already has strong support with American Express (NYSE:AXP), MasterCard (NYSE:MC) and Visa (NYSE:V) all involved. Consumers can also link their iTunes info through their phone or watch to make direct purchases as well. Initial participating retailers include Bloomingdale's, Disney Store, Walt Disney World, Duane Reade, Macy's (NYSE:M), McDonald's (NYSE:MCD), Sephora, Staples (NASDAQ:SPLS), Subway, Walgreen (NYSE:WAG), and Whole Foods (NASDAQ:WFM)
On-Track reported second quarter earnings on August 14th. The company "made strong progress executing on our plan to grow our core cashless payment solution business." Second quarter revenue rose 58% to $7.2 million, thanks to several customer wins.
The breakdown of revenue was:
· Retail and Mass Transit: $4.8 million
· Petroleum: $1.5 million
· Parking: $500,000
· MediSmart: $390,000
By region, revenue was:
· North America: $2.6 million
· Europe: $1.8 million
· Africa: $1.3 million
· Asia: $1.5 million
Among the second quarter highlights were:
· Contract with Arlington County (Virginia) for cashless parking solutions
· First deliveries of Wave device in Asia (Hong Kong)
· Introduced Trio device for growing cashless industry for unattended market (vending machines, Laundromats, car washes)
· Received trio order from Vianet, a leader in software solutions for leisure, gaming, and vending sectors. Vianet plans on rolling out to vending machines in Europe in the third quarter.
· Expanded 84 transit ticket vending machines in Poland
· Signed 20 year contract in Albania for parking spaces
The strong second quarter results follow up a first quarter that saw total revenue increase 43%. The first quarter saw the 600,000 Saturn milestone marked thanks to several orders. The first quarter also completed several pieces of a company turnaround that has seen sales of business units and a change to the board of directors.
Back in 2013, revenue was as follows:
· Retail and Mass Transit: $11.7 million
· Petroleum: $4.6 million
· Parking: $2.2 million
· MediSmart: 1.4 million
Broken down by region, 2013 revenue was:
· Europe: $7.1 million
· North America: $6.5 million
· Africa: $4.1 million
· Israel/Asia: $1.9 million
· South America: $300,000
Parking continues to be a huge opportunity for On-Track Innovations. The company announced a new 20 year contract with Elbasan (Albania). The deal is for parking operations for 4000 spaces. Fifteen years ago, On-Track helped Israel in their parking meter devices. That initial deal has led to more than 850,000 parking devices sold in Israel and a presence in 45 cities throughout the country. On-Track is already comparing the Albania deal to this successful one from the company. The Albania deal is much broader, as the management side of things allows On-Track to collect fees and enforce parking violations. The company will see revenue from Albania this year, which will accelerate as time goes by.
Another parking deal was signed with Arlington County, which marks one of the first U.S. cities to take advantage of On-Track's cashless parking expertise. The deal will replace the current iPark system. The five year contract is for 5000 parking spaces.
On-Track received an $800,000 order from a U.S. channel partner in the self-service market at the end of August. With the option to increase the amount of devices, the total purchase price could balloon to $1.6 million. The deal is for the company's Saturn 6500, which is a NFC and contactless reader. This marked the third major U.S. channel partner for On-Track in 2014.
Imagine if all vending machines also allowed you to pay with a card versus cash and coin. While many machines across the nation have upgraded their technology, there is still a wide unmet need for a company like On-Track to allow for cashless transactions. On-Track also is upgrading fuel pumps at gas stations, Laundromats, and ticket booths for public transportation, making cash less of an everyday item to get around and purchase items.
On-Track is also continuing its expansion in the petroleum category. Back in December, On-Track announced an agreement with Wayne, a former General Electric (NYSE:GE) unit, to supply parts. The company supplied OTI's Easyfuel Plus Automatic Vehicle Identification components for Wayne Fusion. Wayne re-branded the items under its name and integrated it directly into the Fusion.
One of the items most talked about with On-Track is its pending lawsuit versus T-Mobile (NYSE:TMUS). This lawsuit is for NFC technology on phones. On-Track may end up getting nothing out of the lawsuit, or it may end up getting a large amount of money and the possibility of more lawsuits down the road. I believe this is not being priced into shares, but is also hard to gauge at this time. The company did say it has three methods to monetize its patents.
· Outright assignment to someone else
· Sue a legit infringer and collect money damages
· Collaborate with another business and license
Back in February, On-Track was granted its request to seek damages from T-Mobile. This is a step in the right direction and has been a hot topic. The company won't comment on specifics while the legislation is continuing on. On-Track has more than 100 patents across 24 patent families. The patents cover a wide range of NFC technology across 55 countries. The T-Mobile trial is expected to take place in the fall. On-Track does have well known patent lawyer Dimitrios Angelis to attack T-Mobile as well.
Another item to watch is the fact that On-Track recently terminated its poison pill. The old board of directors had this in place to keep control of the company. With the pill out of the way, On-Track could easily be acquired or become the target of any talks for companies expanding in the NFC or transaction segment. In fact I wouldn't be at all surprised to see a POS leader like NCR (NYSE:NCR) sniff around at a possible deal.
While the Apple link will initially help On-Track Innovations get more press coverage and possible analyst interest, the company is also actively attending conferences and events to promote its product offerings. Here is a look at upcoming conferences:
· September 17-18: ISIS Mobile Innovation Forum (California)
· September 25-27: China International Self-Service and Kiosk Show
· October 28-29: Total Payments Asia 2014 (Thailand)
· November 2-6: Money 2020 (Las Vegas)
· November 4-6: Cartes 2014 (Paris)
· 2015: includes events in Spain, Brazil, Singapore, Italy, and Germany
· October 25-27 2015: NFC Solutions Summit (Phoenix)
Whether or not Apple Pay has an immediate impact on On-Track Innovations is yet to be seen. The inclusion of NFC technology by Apple does increase the likelihood that On-Track's products will see mass appeal. In fact, Apple may have been the missing puzzle piece needed to make NFC technology a reality in several markets. On-Track CEO Ofer Tziperman had this to say, "We expect Apple's NFC-equipped iPhone 6 and Apple Watch will drive stronger demand for our NFC readers in the unattended and self-service market. We remain ideally positioned in this growing market with the most comprehensive and cost-effective solutions, which are certified by all major payment card associations."
During its fourth quarter earnings call, On-Track Innovations offered three key points to emphasize:
· Continue to make strong progress executing our strategic plan, focus on our core business of providing cashless payment solutions and monetizing our IP
· Effectively manage costs and further optimize our expense structure
· Expectations for the future remain high as we build upon the momentum we have established and see a widening pipeline of growth opportunities.
The company's technology is disruptive and is in a market set to see extreme growth. Consider that there are 30 million food and drink vending machines worldwide (Q4 Call) and most lack cashless capabilities. That is a lot of potential machines that On-Track can upgrade. Then factor in the number of public transportation tickets, parking meters, laundromats, kiosks, banks, and other customers that could use the NFC technology to capture additional sales. On-Track also has relations with two of the world's largest pump manufacturers in the petroleum market. With both customers having 10,000s of gas stations around the world and On-Track getting strong gross margins of 60%, the petroleum market offers a large opportunity as well.
On-Track calls $26 million its goal for annual revenue. The company plans on shipping 150,000 NFC readers in 2014, an increase of 35% from the prior year. With several large wins and a second quarter that saw heavy shipments, I believe both of these goals are extremely conservative. On-Track also said on the recent call that it couldn't announce several wins yet, which means immediate upside could be coming based on the size of the deals. The company is also projecting to hit positive adjusted EBITDA in the first quarter of next year. That figure doesn't include any results from the patent monetization, which means the results could be even greater than forecasted if any damages are seen from T-Mobile.
Shares of On-Track sit at $3.55 at the time of writing. Going into the end of the trading week, shares will likely see sharp moves once again as the name is tossed out as a winner in the new Apple products. Investors shouldn't bid up shares but be ready to buy the shares on pullbacks or around current levels. I began recommending the company to portfolio subscribers at $2.63 and currently shares sit in my own portfolio as well.
Ignore the Apple buzz for On-Track Innovations. Will the company have some success because of Apple? The answer is most likely yes. On-Track is not a component in the new phone and won't get any money directly from Apple. Apple's new phones and technology validate the technology and growth On-Track has seen. Be ready to buy this stock before it gets noticed by the big boys and takes off once again.
This is a $40 stock in 2 years.
Now we know why the spike in AH. Obviously the show is pre-recorded and some got in early
Seriously? Just need 600,000 german shepherds that need to be fed, housed and given veterinary care for 10 years.
Now read Yahoo news for DGLY