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Putting A Value On Yahoo!

Jan 05 2013

Deutsch: Logo von Yahoo

Deutsch: Logo von Yahoo (Photo credit: Wikipedia)

Putting A Value On Yahoo!

The introduction of a new leader, Marissa Mayer, in July 2012 at the helm of Yahoo!, along with the disposal of almost 50 percent of its stake in Alibaba has allowed Yahoo! to re-focus on its main business. In addition, both these moves have contributed to a 30 percent increase in the company's stock price in the two months after the 3rd quarter earnings were released. Many analysts predict that the company's stock price will increase by around 35 percent in the next year, for several reasons:

Yahoo! Overview

Moat Internet users are familiar with Yahoo! and the company has millions of customers in 60 countries worldwide. Most of the company's revenue comes from text based links to other websites, and from so called display revenue generated by graphical ads. The company offers marketing services, media, search and marketplace; and communications and communities.

Competition

AOL is the company's biggest competitor, although whereas AOL has experienced a 5 percent drop in revenue, Yahoo! has enjoyed a one percent increase in market share during the first nine months of 2012. All of this means that at 5.8x forward EBITDA, Yahoo! is trading at a premium.

EBITDA Valuation

A core, or enterprise value of around $1.9 billion is arrived at, if the company's cash and marketable securities situation is included in the valuation, as well as the Yahoo! Japan and Alibaba investments on a mark to market basis. Yahoo's! core business is traded at 4.2x and 3.9x LTM and 2013E EBITDA, respectively, if one assumes a zero cost basis in both the Alibaba and Japan stakes. However, both of these investments seem set to increase quickly, making it difficult to predict the company's stock price or valuation over the next few years. A valuation of $25 per share stock is perhaps a more accurate figure for Yahoo! if we assume a multiple expansion to the level of AOL's EBITDA valuation (4-5x EBITDA.

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