theworldismine13
God Emperor of SOHH
Yahoo’s Asian Lifeline
http://www.nytimes.com/2014/01/19/technology/yahoos-asian-lifeline.html?hp&_r=0
http://www.nytimes.com/2014/01/19/technology/yahoos-asian-lifeline.html?hp&_r=0
Yahoo’s core business has been eroding. It’s lost ground in display advertising and in online search, and the Wall Street consensus is that its revenue declined last year.
When Marissa Mayer, Yahoo’s chief executive, unceremoniously dumped Henrique de Castro, her top lieutenant, on Wednesday, it was an acknowledgment that she had so far failed to turn the company around.
But no matter: Wall Street greeted the news of Mr. de Castro’s dismissal with a shrug. Regardless of what Ms. Mayer does, the stock market loves Yahoo. Its shares doubled in value last year, outstripping the performance of highflying rivals like Google, AOL and Facebook. How is this feat even remotely possible?
Yahoo’s lofty valuation makes sense only if you put its American business aside, and think of the company as an investment in Asia. That’s the way Wall Street sees it. From this perspective, most of Yahoo’s value is found in Japan and, especially, in China, where it has a large stake in the Internet colossus Alibaba.
“In the United States, they are doing the best they can, and I think Marissa Mayer is doing a fine job, but their core business is challenged, to be polite, and it will likely remain that way for some time,” said Victor Anthony, managing director for Internet media at Topeka Capital Markets. “For Yahoo, it’s all about Asia.”
Yahoo’s 24 percent stake in Alibaba, which has been described as a combination of Amazon, eBay and PayPal, with a bit of Google thrown in, accounts for the bulk of the American company’s value, Mr. Anthony calculates. In the United States, Yahoo trades at about $40, and he says he believes that at that price, it still has plenty of room to run.
“I think Yahoo’s worth $50 to $52 a share,” he said, “but that’s not because of its American operations.” In his estimation, Yahoo’s American core, damaged by sliding advertising revenue and diminished profit margins, is worth only $10 a share.
On the other hand, its holdings of Alibaba, which is planning an initial public offering that has Wall Street drooling, are worth $30 a share, he said. While that figure is subject to debate, no one questions that it is sizable: Alibaba plays a gargantuan role in China’s Internet economy. This online retailer’s two main shopping sites handled roughly $160 billion in merchandise in 2012, more than eBay and Amazon combined. Analysts estimate that its eventual I.P.O. could value it at $130 billion to $190 billion.
Yahoo’s stake in its Japanese counterpart, Yahoo Japan — which still beats Google in local search — is worth an additional $7 a share to the American company, Mr. Anthony said. The rest of the stock’s value comes from Yahoo share buybacks, which are financed in large part from income derived from the Asian properties, he said.
While numbers vary somewhat, many people on Wall Street make remarkably similar estimates.
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Jerry Yang, co-founder of Yahoo, made the company’s Alibaba investment. Rick Wilking/Reuters
In a research report last Oct. 16, for example, JPMorgan Chase noted some improvements in Yahoo’s Internet search metrics and in the revamping of categories like sports and weather on its website. Over all, the report said, “the core business remains challenged and we believe the focus for most will remain on the strength in its Asian assets.”
In a similar vein, Brian Wieser, senior analyst at Pivotal Research in New York, said: “It’s sad but you can pretty much forget about Yahoo’s core. I’m afraid it has no future. The Asian holdings, though — that’s another story.”
Like many other people who follow Yahoo closely, Mr. Wieser says Ms. Mayer appears to be doing a perfectly fine job. “She’s talented, but it’s just that she’s facing a secular decline in the company’s core advertising business,” he said. Mr. de Castro was supposed to bring new ad revenue to the company. But Mr. Wieser suggests that the failure to do so wasn’t surprising. “I don’t care who runs the company right now,” he said. “They’re not going to be able to reverse that easily.”
Fundamentally, he said, Yahoo is suffering from an ailment that afflicts “legacy publishers” of all kinds, including much older ones like newspapers and magazines. Yahoo, the dominant site of bygone days when the words “web portal” were still fashionable, can no longer attract premium display advertising as easily as it could before the rise of Google and sites like Facebook.
Mr. Wieser praised Ms. Mayer’s acquisitions of Internet properties like Tumblr, the blogging service, and her hiring of prominent online talent like Katie Couric, the television host, and David Pogue, former tech writer at The New York Times. “That may all be helpful,” Mr. Wieser said. “But it’s not moving the stock.”
Mark May, a Citi Research analyst, said that while Ms. Mayer had made progress, much of Yahoo’s stock market strength resulted from prescient investments by Jerry Yang, a Yahoo co-founder who stepped down from his leadership positions at the company in 2012. He made Yahoo an early financier of both Yahoo Japan and Alibaba and fought off repeated efforts by the Chinese company to buy out Yahoo’s stake.
“That’s much of the value of Yahoo now,” Mr. May said.
Mr. Anthony of Topeka Capital Markets added: “Marissa Mayer is really extremely lucky. She inherited many problems, of course, but she’s still got those incredible Asian assets. And that’s keeping the stock strong today.”
