
Yahoo and Alibaba, Joined at the Balance Sheet - BobbyVsTheDevil
https://medium.com/backchannel/yahoo-and-alibaba-joined-at-the-balance-sheet-94b459233894
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adventured
"And yet…your company is worth less than zero."

I don't understand how this keeps getting repeated. It's one of the more
financially ignorant things I see, repeated like a common myth.

It's the Alibaba stake that is discounted, as assets / cash on a balance sheet
always are.

Yahoo, the stand-alone business, is not worth less than zero. It was not worth
zero before Alibaba became valuable, it won't be worth less than zero after
the Alibaba assets are discharged or spent.

If Yahoo has $X in earnings, and they remove the Alibaba stake completely from
the company (say it all goes to shareholders in a one-time dividend), those $X
earnings will be not receive a zero multiplier when it comes to a valuation
for the publicly traded YHOO. If Yahoo can generate $500m in net income off of
$4 billion in sales, they will be worth $10 to $15 billion roughly speaking.
Even without net income, Yahoo will still receive a sizable valuation on Wall-
Street. See: AOL, which is presently worth $3.3 billion (while struggling the
last few years to generate much net income from their actual business), and
there is no question Yahoo is worth a few times what AOL is. The claim that
Yahoo's core is worth less than zero, does not hold up under any actual real
scenario.

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tstyle
For the financially ignorant, why does asset/cash on balance sheet get
discounted?

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charlesdm
In this case, because:

1/ As a minority shareholder, you don't have control over the Alibaba
shareholding. Theoretically, the company could sell it off and do other things
with it and you would have no way of stopping it. If this company would be
trading at a substantial discount (say, 15-25%), it could be 'raided' by an
(activist) investor who sells it for parts.

2/ The Alibaba stock can't be transferred directly to the shareholders without
incurring tax. It's 'stuck' in a shell corporation. The only exit is probably
Alibaba acquiring that company to clean up their shareholder structure.

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ucha
> Mayer returned half of the after-tax money to shareholders in the form of a
> dividend.

Nitpicking but Yahoo never paid a single dividend in its history. Mayer vowed
to return the proceeds of the first Alibaba stake sale by doing share
buybacks. That generally implies that the company estimates it's undervalued.
They already brought down the the number of outstanding shares from 1B+ to
<940M.

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repsilat
Dividends and buybacks are functionally equivalent. Think of a company like a
short, wide plastic container, half-full of water. Think of the air in the
container as being the cash that the company has, and the water as the rest of
its value. Each share in the company corresponds to some imaginary vertical
slice of the container.

Now, you can apportion the value in the company in a few different ways, but
there are two extreme ones:

1\. The container is lying flat on the table. Each share has the same
proportions of water and air as the others. If everyone's slice of the
container is 10% air, you could pay it out to them evenly ("dropping the lid"
of the container.) This shrinks the company, but it doesn't shrink the volume
of "stuff" that anyone owns, modulo taxes.

2\. You tip the container on its side so all of the air goes to one end. If
the container is 10% air, now 10% of shares are _all_ air, and the other 90%
of the shares have no air at all. If you "paid out" the air now, you're doing
a share buyback.

These accomplish basically the same thing for a company -- they have less cash
(air) and less market cap (total volume).

They're about the same to the shareholders, too. If I have 10 shares in Yahoo
and they use all their cash to do a buyback of 10% of their stock, I can sell
one of my shares and be in exactly the same financial situation I would have
been in had they decided to pay a 10% dividend (I'd have the same amount of
cash, my shares would be worth the same amount, and they'd correspond to the
same proportion of the company.)

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guiomie
Capital gains and dividends aren't taxed at the same rate, so the whole water
air thing in the end doesnt match up for an Investor.

Then theres the whole debate about, maybe management can't reinvest that money
properly, maybe the shares will actually lose value because of this.

~~~
Scoundreller
My guess is that management gets bonuses based on how well the stock performs,
and dividends don't get included in that calculation. So dividends will never
cross their mind.

~~~
skelsey
A buyback also raises the value of options, while a dividend is not paid to
option holders.

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Animats
Spinco gets Yahoo Store? Aw.

Yahoo Store was originally Viamall, which had the first application where you
could build a web site on line. It was written in LISP. How else would you
represent an editable HTML tree?

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TazeTSchnitzel
I've read a previous article[0] on Marissa Meyer's tyrannical reign. I fully
expect SpinCo's launch to result in Yahoo's share price tanking and Meyer
being fired.

I'm not trying to be super-negative, but honestly, I've heard nothing good
about what Meyer's done for the company, and it's a shame.

Edit: I think Yahoo and Aol merging might not be the worst idea. Aol have
something Yahoo desperately wants: content.

[0] [http://www.nytimes.com/2014/12/21/magazine/what-happened-
whe...](http://www.nytimes.com/2014/12/21/magazine/what-happened-when-marissa-
mayer-tried-to-be-steve-jobs.html)

~~~
pbreit
I guess you missed Levy's first Yahoo story:
[https://medium.com/backchannel/marissa-mayer-has-
completed-s...](https://medium.com/backchannel/marissa-mayer-has-completed-
step-one-71dc31912855)

Many feel the precise opposite as you.

