back to article Yahoo!... Our Alibaba stake's worth BILLIONS. Oh – our shares are in the toilet

So here's the little financial markets puzzler of the moment. Alibaba has launched that IPO, the stock has soared and Yahoo! has made a bundle. Jerry Yang's original investment of $1bn now looks like one of the great investment deals of all time. However, as the Alibaba stock price soared (from the $68 of the placing to some $99 …

  1. Anonymous Coward
    Anonymous Coward

    So the tl;dr is

    The stock market looks at Yahoo and thinks "Here's a reckless gambler with a drinking habit and a tendency to go out and splurge on tat, who has a lot of money in the bank today, am I going to up his credit rating because of it? Answer: no."

  2. Anonymous Coward
    Anonymous Coward

    Maybe something is inverting it's value !

    Can't think what !

  3. FlatSpot
    Facepalm

    Further Explanation required

    "...he was convinced that the Vodafone management was just so bad that it would waste all the money entirely. As it happened, he was wrong (they gave most of it back to shareholders), "

    So they did just waste it by spunking it on shareholders for short term glory, rather than long term business growth?

    1. Tim Worstal

      Re: Further Explanation required

      Sending money to the people that own that money is an interesting definition of "waste".

      1. Anonymous Coward
        Anonymous Coward

        Re: Further Explanation required

        It's an interesting point. Vodafone were basically admitting that they didn't have anything better to do with it.

        Of course, sometimes a company reaches a saturation point at which it can't expand, further investment is pointless, and the sensible thing to do is to keep going, generate lots of cash and return it to shareholders. An example might be a mine, and I think there was an anthracite mine in Wales that did just this - worked out the seam, made the mining cooperative rather well off, and then shut down with the band and the banners flying before they all went off to new jobs in other mines.

        But for a mobile phone carrier to admit, in effect, that they didn't know how to spend money to expand the business is a bit of an admission.

        1. theblackhand

          Re: Further Explanation required

          Re: "But for a mobile phone carrier to admit, in effect, that they didn't know how to spend money to expand the business is a bit of an admission."

          Or they don't know how to spend the money and provide an acceptable return on it. Spending US$100 billion to improve your presence in region X when it will only make you US$1billion revenue/year over the next 10 years may be an option but your shareholders may not thank you for it.

  4. auburnman
    Meh

    The negative worth thing is no great mystery. Even assuming the Yahoo! board made a written declaration that they'd not piss their cash pile away on hot companies, they would still be an also ran with near zero public goodwill or recognition and no big projects in the pipeline to make them stand out, and they're competing with Google and Bing. Investors would be better off putting their money in a basic savings account than going with Yahoo.

    1. ratfox Silver badge

      Well, that's the thing

      Yahoo could theoretically give all the cash and stock they own to their shareholders, and it would be more than the official worth of the stock; then the shareholders would still own a business that makes a billion a year in profit.

  5. hugo tyson
    FAIL

    Troubled Cambridge Micro Maker....

    ....Acorn Computers found itself in the same situation when its net worth was less than the value of its ARM shares. At that point they had an EGM and decided just to give the shareholders the ARM shares instead and call it a day, selling off various teams to BroadCom et al. Methinks the same comments about them not really knowing what to do with any money they might make, or indeed what to do at all, applied there also.

    1. Conrad Longmore

      Re: Troubled Cambridge Micro Maker....

      I was thinking of exactly the same thing when I read the article. What ultimately killed Acorn was (perversely) the significant value of its shareholding in ARM. A bit of research indicates that Acorn was bought for £270m to gain access to the shares, with the rest of the company broken up and renamed.

      Sure, Acorn was probably doomed anyway. Even RM couldn't hack it from selling PCs to education markets in the end, the esoteric ARM based devices would probably have gone the same way.

      Yahoo! would require significantly deeper pockets. One possibility of course is that Alibaba might make a bid to liberate their shares..

  6. Anonymous Coward
    Anonymous Coward

    More of a hostile takeover target

    If a company has more assets left, after its liabilities, and particularly if those assets are not part of the core business, then wouldn't it be a very sweet target for a hostile take over?

    Buy it, split out the core business, repackage that and sell it on (even if for just $1) and then pocket the cash and other shares that are worth more than what you paid?

    1. I ain't Spartacus Gold badge

      Re: More of a hostile takeover target

      That's true. But the share price would rise during the take-over process. Particularly if the reason the market is valuing the company so low is that they think the management suck. If new management look to be coming in, the price will rise.

      This is particularly so when the assets are obvious. If a take-over is done becasue management think there are two complementary bits of the two businesses, that'll become a lot stronger when working together, then it's harder to convince people of the value. When the shares are worth less than the total cash on hand, it's a lot easier.

      Although perhaps now is the time for Microsoft to make another offer? I can't remember if we decided on here last time. Was it going to be YaSoft!, or Microhoo!? Given the piratical nature of take-overs, I think Yarrrsoft! might be better...

      1. Tim Worstal

        Re: More of a hostile takeover target

        Actually, if Microsoft used its offshore cash to do the buying (it has enough) then that would count as an inversion (ie, move Yahoo offshore, out of the US tax net) and thus solve the tax problem as well.

  7. haroldo

    There's lots of ways for this anomaly to be resolved - check out http://www.bloombergview.com/articles/2014-09-22/alibaba-could-buy-yahoo-for-free for some more analysis.

  8. IHateWearingATie

    You've got to look at the share price...

    ... and wonder how the CEO keeps her job.

    The market is basically saying that they think the company is going to be so bad at using the cash that they may as well put it all on a large barge, set fire to it and let it float across San Francisco bay.

    That's a hell of an indictment , yet I bet she doesn't get kicked out at the next AGM.

    1. I ain't Spartacus Gold badge
      Happy

      Re: You've got to look at the share price...

      Didn't Microsoft's share price go up by 5% almost instantly after Steve Ballmer had announced he was leaving? Which was effectively the collected masses of Wall Street turning up to his leaving do, in order to blow an enormous raspberry in his face.

      That could be a great new way to set CEO's bonus levels. It's a very hard thing to do, as you want to reward sustainable success, not just quick-fixes like appears to have happened at Tesco. As my friend used to say, "if you set me a stupid target, I'll find a stupid way to meet it."

      Instead, release a story that the CEO is leaving. Watch the share-price that day. If it goes up, they get a pay cut (or just cut out the middle-mand and sack the buggers). If it goes down, then apologise to the markets for the mistake, and announce that you're giving them a fat retention bonus.

  9. Identity
    Boffin

    That's what makes horse-racing

    There are those who think the market is always right. They just may, in the long run*, be correct but many of us will not live that long. One only needs to look at the day-to-day fluctuations to know that on a shorter time frame, valuations may be wrong. Sometimes, the net asset value of an issue is greater than the price. We call that a bargain, and those with patience and perspicacity often benefit.

    In the matter turning cash over to shareholders, in a (somewhat) famous court case, Dodge v. Ford Motor Co. (170 N.W. 668 (Mich. 1919)) the plaintiffs complained that Ford was using cash to build it's business (by lowering prices so that sales would grow), when that cash (even that which was only potential, had the prices not dropped) rightfully should be turned over to shareholders as dividends. They won. The ruling enshrined the idea that corporations exist solely for the profit of shareholders.

    *I can't help but remember Keynes statement that in the long run, we're all dead.

    1. I ain't Spartacus Gold badge

      Re: That's what makes horse-racing

      Keynes also said, "the market can remain irrational for longer than you can stay solvent."

      Which seems somehow appropriate here. He was a very quotable chap.

      The market comes up with some interesting valuations. And sometimes get things spectacularly wrong of course. But their wild over-valuation of Facebook, for example, may turn out to be correct - on the grounds that it has so much income growth potential and so many people signed up. Not that I buy it myself, but it's turning out decent profits, unlike Twitter.

      Yahoo! seems to be on the opposite trajectory. So rather than it being priced below its asset value being a bargain, that may be an accurate assessment of its potential and quality of management. In which case it's not worth buying a few shares, but is worth getting all of them.

    2. Steve Knox

      Re: That's what makes horse-racing

      There are those who think the market is always right. They just may, in the long run*, be correct but many of us will not live that long. One only needs to look at the day-to-day fluctuations to know that on a shorter time frame, valuations may be wrong. Sometimes, the net asset value of an issue is greater than the price. We call that a bargain, and those with patience and perspicacity often benefit.

      I think you've got that exactly backwards. The market is always right, but only in the immediate term. The current market price cannot be more or less than the aggregation of current valuation by potential stakeholders at the given point in time.

      Calling any of those individual valuations right or wrong presumes a fully objective valuation method, which doesn't exist. Some individuals base their valuations on short-term goals and others on long-term goals. Some base them on careful analyses, whilst others are completely irrational. The market doesn't care. There is no objective method for calculating an intrinsic value of an organization; the value always comes back to the subjective desires of the individual stakeholders.

      What you call a bargain is simply a difference in strategic opinion.

      1. Adrian 4 Silver badge

        Re: That's what makes horse-racing

        Well said. The current market price is what the current market will pay : stock markets are a self-fulfilling prophecy. It has nothing to do with the value.

        Yet another way in which our financial systems are hopelessly dysfunctional.

  10. Spoonsinger
    Coat

    Upright '!'s....

    Is it actually possible to get a consistent Register standard on Yahoo !'s. (i.e. whether it's italic or upright). It's just confusing. That's to say if '!' in italics is a different slant, (erm), to a story over an upright '!', then it would be helpful to know where the Register is coming from on any particular article. (Obviously a Reg articles will be pointedly witty in this respect anyway, but a joke is only pertinent if the audience as a whole gets it. Terminology is a form of exclusion. In jokes more so)

  11. Anonymous Coward
    Anonymous Coward

    I'm not sure it's with rationalising

    Shares in a company I worked for fell to below a dollar, during the turn of thr century tech bust. At the time, we were all working our asses off. More importantly, it was the start of the year (the buy price less a percentage, in our stick purchase scheme). The end result? A lot of new cars in the car park, the following January. Pity it wasn't UK tax efficient - some of us went almost two months without pay (but still very well worth it). Markets aren't ever rational; I think you'd struggle to find any company that is simply correctly valued (or close to it).

  12. John Smith 19 Gold badge
    Unhappy

    Just to be clear Yahoo! is delivering $1Bn *profit*

    That may be peanuts compared to Google but how does that compare to say Amazon?

    I've known a number of people who'd love to run a $1Bn/yr business "failure."

    The challenge as Tim point out is how to use some of that money to a)Grow their core business or b)Buy into something else to increase profits.

    And given the market Yahoo is in that's a pretty tough question to answer.

    1. Anonymous Coward
      Anonymous Coward

      Re: Just to be clear Yahoo! is delivering $1Bn *profit*

      In simple terms, investment culture as changed. Sitting on a pile of cash while you're making profit (perhaps ensuring some is set aside for a rainy day) or, heavens forbid, growing a company organically (that thing you do when you hire and train staff, and develop out your own platforms). No, investors expect you to buy hyped up, overvalued and bullshit-driven but cool things. Sustainable growth just isn't in fashion, these days.

  13. Alex Walsh

    Any one else remember when M&S was had a market value well below the book value of it's property portfolio? Sometimes the market does my nut.

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